The education sector is undergoing rapid transformation. With increasing complexities in asset leasing arrangements, many childcare centres, schools, universities, and other educational institutions face a growing need for efficient lease management and compliance with the current accounting standards, such as IFRS 16 (AASB 16).
Education providers often maintain diverse lease portfolios, with agreements ranging from simple arrangements for classrooms and computer labs to more complex leases for specialised facilities and research equipment. In addition, education lease portfolios may involve multiple stakeholders. This makes lease accounting for education a complex and time-consuming task, especially when dealing with facilities, vehicle fleets, and warranties of fitness.
Complying with IFRS 16, however challenging, is important for the education sector because it provides greater transparency and accountability around lease accounting, especially because, generally, public funding is involved.
Effective lease administration is crucial for maintaining smooth operations and optimising your financial resources, whether your organisation is an early childhood centre, school, college, or university.We have compiled lease accounting education best practices that can help institutions in the education sector overcome challenges and navigate the complexities of lease accounting. These will help you identify the main areas to work on and better equip you to manage your leases efficiently and achieve compliance.
Centralised lease portfolio
Centralising lease information by using education lease management software helps maintain data accuracy, simplify financial reporting, improve strategic decision-making, and reduce the risk of errors. It is best to start with gathering your lease portfolio and thoroughly reviewing each lease agreement to ensure that all leases are correctly documented and that your institution meets its obligations.
Pay attention to rent payments, maintenance responsibilities (e.g. who is responsible for repairs and upkeep), and any lease extension or early termination clauses. It is also important to identify any agreements that might be missing from your records, locate them and add them to your centralised database.
Facility management
Well-maintained and efficient facilities create an optimal learning environment for students, enhancing their overall educational experience. Additionally, proper facility management ensures students' and staff's safety and security, promptly addressing potential hazards. Effective facility management could also contribute to cost savings by optimising energy usage and maintenance expenditures, allowing educational institutions to allocate resources to educational programs and initiatives.
A well-managed facility can positively impact the institution's reputation, attracting students and talented educators. Once you have collected and organised all lease-related documents for your facilities, it can be helpful to appoint an individual (or establish a team) responsible for overseeing compliance, renewals or negotiations. You can also consider investing in lease management and lease accounting software to streamline lease tracking, payments, and reporting.
Vehicle fleet management
A well-managed fleet ensures the timely and secure transportation of students, staff, and resources, enhancing the overall quality of education. Vehicle management helps optimise maintenance schedules, reducing downtime and unexpected repair costs. Lastly, efficient fleet management contributes to sustainability goals by reducing fuel consumption and emissions, aligning with educational institutions' growing emphasis on environmental responsibility.
Maintain a detailed inventory of your institution's vehicle fleet, as well as records of regular vehicle inspections and warranty of fitness checks. Regularly audit vehicle lease agreements to ensure accurate billing and compliance with the terms. Finally, track upcoming fitness inspections and regular maintenance to avoid lease violations and keep vehicles in top condition.
Warranty of fitness
In an environment where the well-being of students, educators, and staff is paramount, having equipment and facilities that meet fitness standards guarantees a conducive learning and working environment. Warranty of fitness helps ensure the safety, functionality, and reliability of equipment and facilities used for educational purposes. Compliance with warranties of fitness helps prevent unexpected breakdowns or accidents, reducing disruptions to education and potential legal liabilities. It also allows educational institutions to allocate their resources efficiently by budgeting for necessary maintenance and replacements, ultimately supporting the smooth operation of educational programs. Maintaining a notification system can help track warranty expiration dates and monitor when warranties of fitness are due for equipment and facilities.
Compliance and reporting
Stay updated with the latest lease accounting education standards relevant to your jurisdiction and organisation. For example, the introduction of IFRS 16 (AASB 16) has significantly changed how leases are accounted for. It requires lessees to recognise most leases on the balance sheet, except for short-term and low-value leases.
Ensure that your accounting practices align with the standards for financial transparency and compliance. Adhering to accounting education standards ensures accurate reporting and avoids financial misstatements or penalties. To simplify compliance, use education lease management software. Reliable software, such as Nomos One, can help automate many of the tasks involved in IFRS 16 lease accounting, making the process more efficient and accurate.
By implementing these best practices, finance professionals and accountants in the education sector can help to ensure that their organisation's lease portfolio and lease accounting records are complete, accurate and compliant with IFRS 16. It may also prove beneficial to consult with a lease accounting expert if you have any questions or concerns about IFRS 16 lease accounting.
Looking to gain insights into simplifying IFRS 16 compliance and enhancing financial transparency? Download our free IFRS 16 checklist for the education sector!
