As New Zealand public sector prepares for the adoption of IPSAS 43, many entities are finding themselves navigating complex changes in lease accounting. IPSAS 43 requires the recognition of almost all leases on the balance sheet, a shift that introduces new technical, operational, and compliance demands. Drawing from the private sector’s experience with IFRS 16, public sector organisations can anticipate and prepare for a range of implementation challenges. In this article, we explore the most common obstacles and share practical strategies to overcome them.
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Data collection and lease identification
One of the first and most time-consuming challenges organisations encounter is the process of identifying and collecting lease data across multiple departments. Many public entities manage their leases using decentralised records, inconsistent formats, or agreements embedded within broader service contracts, making it difficult to compile a complete and accurate lease inventory. To address this, organisations should begin with a comprehensive lease audit and work collaboratively across procurement, finance, legal, and property teams. Establishing a centralised repository and a structured review process will help create a single source of truth, ensuring all relevant lease agreements and supporting documents are accounted for and validated.
Lease classification and interpretation
Another significant hurdle is correctly classifying leases under the new IPSAS 43 framework. Public sector entities often find it challenging to determine whether certain agreements meet the definition of a lease, how to treat embedded leases, or how to recognise concessionary arrangements like peppercorn leases. These decisions require nuanced interpretation and can vary by entity. To navigate this complexity, it’s essential to establish internal guidelines and decision trees to assist staff in identifying and classifying leases. Training and workshops can help ensure consistency across departments, while early collaboration with auditors will reduce the risk of misinterpretation later in the compliance process.
System and process limitations
As organisations move deeper into implementation, many discover that their current systems are not equipped to manage the increased complexity of IPSAS 43. Spreadsheets, while familiar, often lack the scalability and audit trail functionality required to handle tasks like remeasurement, disclosures, and lease modifications. To overcome this, public sector entities should assess their existing tools and explore dedicated lease accounting solutions that support centralisation, automation, and compliance reporting. Choosing the right system early can significantly reduce administrative burden and improve long-term accuracy.
Stakeholder engagement and cross-functional collaboration
One challenge that tends to be overlooked is ensuring buy-in and coordination across departments. During IFRS 16 implementation, many organisations made the mistake of treating lease accounting as purely a finance project, only to realise later that legal, procurement, property, and IT teams play critical roles. To avoid similar pitfalls, public sector entities should form a cross-functional working group from the outset, assigning clear responsibilities and ensuring regular communication. Shared ownership and collaboration are key to a unified, organisation-wide approach to IPSAS 43.
Calculating the Incremental Borrowing Rate (IBR)
Determining the appropriate discount rate presents another common challenge, especially for entities without historical borrowing data. Calculating the IBR is often complex and relies on subjective judgment, which can lead to inconsistencies across agencies. To tackle this issue, finance teams should work with external advisors or central government agencies to create a standardised approach. Documenting the rationale and methodology early and validating calculations with auditors can ensure a more consistent and defensible outcome.
Ongoing compliance
A less visible, but equally critical challenge is maintaining compliance once the initial implementation is complete. Lease agreements evolve over time due to extensions, modifications, or early terminations, all of which require accurate tracking and reassessment. Without clear governance and policies, these ongoing changes can quickly lead to errors or omissions. To mitigate this risk, organisations should develop a sustainable lease management framework, including defined processes for change tracking, regular internal audits, and continuous training for relevant staff.
Resource constraints and competing priorities
Lastly, many public sector entities face the challenge of limited resources and competing operational priorities. IPSAS 43 implementation demands significant time, attention, and expertise, which can be difficult to secure amidst day-to-day responsibilities. The key to overcoming this is to break the project into manageable phases, focusing first on the most impactful tasks such as lease identification and system readiness. Where possible, seek external support to supplement internal teams, and communicate the strategic importance of the transition to secure buy-in and support from senior leadership.
IPSAS 43 introduces a new era of lease accounting for the public sector, demanding accuracy, transparency, and cross-functional collaboration. While the challenges are real, they are not insurmountable. With early planning, the right tools, and a proactive strategy, public sector entities can transition smoothly and lay the foundation for better lease governance moving forward.
Interested to see how dedicated lease accounting and lease management software can support your organisation's needs? Book a demo today!
