The transition to IPSAS 43 marks a significant evolution in lease accounting for public sector entities in New Zealand. Replacing IPSAS 13, the new standard introduces a right-of-use model that requires almost all leases to be recognised on balance sheet, fundamentally changing the way leases are recorded, reported, and managed. For many organisations, the road to compliance may seem complex; however, with early planning, the right tools, and cross-functional engagement, public sector entities can approach IPSAS 43 implementation with confidence. This article discusses five practical steps to help your organisation make the transition as smooth and effective as possible.
Conduct a comprehensive lease inventory
The first step to successful implementation is developing a clear and complete picture of your lease obligations. Begin by identifying all lease arrangements across the organisation - this means not only obvious contracts like office leases and vehicle rentals but also embedded leases within service agreements and concessionary or peppercorn leases common in the public sector. Gathering this information requires collaboration across departments. Procurement may hold contracts, legal may have access to variations and amendments, and property or facilities teams often manage operational details. Bringing these perspectives together ensures that no leases are overlooked. Once all leases are identified, compile them into a centralised lease register. Standardise the data, such as lessor details, lease terms, payment schedules, renewal clauses, and escalation terms, to ensure consistency. A robust and well-documented lease inventory serves as the foundation for all future analysis, classification, and reporting.
Assess lease classification and data requirements
With a comprehensive lease inventory in hand, the next step is determining which agreements meet the definition of a lease under IPSAS 43 and how they should be accounted for. This involves reviewing each lease’s structure to determine control over the use of an identified asset, the lease term, and the nature of the payments involved. Key elements to assess include whether the lessee has the right to control the use of the asset for a period of time, the enforceable period of the lease, and whether options to renew or terminate are reasonably certain to be exercised. For concessionary leases, additional considerations apply regarding how to reflect the economic benefit transferred. During this phase, finance teams should work closely with auditors and accounting advisors to ensure alignment on key assumptions, particularly the incremental borrowing rate (IBR) and any entity-specific judgments. Establishing consistent classification criteria and validating them with auditors reduces risk and avoids future restatements.
Upgrade systems and automate calculations
Managing lease accounting under IPSAS 43 introduces a level of complexity that traditional tools like Excel are simply not designed to handle. Manual spreadsheets are prone to error, time-consuming to maintain, and unsuitable for high-volume, high-complexity lease portfolios. Transitioning to dedicated lease accounting software is crucial. These systems automate complex calculations such as the present value of lease payments, depreciation of right-of-use assets, and interest expense on lease liabilities. They also provide features to manage lease modifications, terminations, and reassessments, helping ensure ongoing compliance beyond initial implementation. In addition, lease accounting software offers built-in audit trails, role-based access, and standardised reports. By digitising and centralising lease accounting processes, public sector entities can reduce administrative burden, improve data integrity, and produce accurate IPSAS 43-compliant reports with confidence.
Build a cross-functional implementation team
IPSAS 43 implementation is not solely a finance project; it touches nearly every part of a public sector organisation. Legal and procurement teams play critical roles in identifying leases and understanding contract terms. Property and facilities teams manage the day-to-day operations of leased assets. IT teams support data consolidation and system implementation. Form a cross-functional implementation team that includes representatives from all relevant departments. Assign clear responsibilities and ensure all team members are trained on the fundamentals of IPSAS 43. This group should lead the development of a project roadmap, coordinate timelines, manage communications, and ensure alignment across the organisation. Fostering collaboration early and maintaining open channels of communication can help resolve issues quickly, avoid duplication of effort, and build internal buy-in. Shared ownership is key to maintaining momentum and ensuring successful adoption.
Establish ongoing lease management processes
IPSAS 43 compliance isn’t a one-time exercise. Leases evolve - terms are renegotiated, assets are replaced, payment structures change, and contracts are extended or terminated. These events require timely reassessment, modification, and accurate financial reporting. To stay compliant over the long term, public sector entities should establish robust governance frameworks for lease management. This includes documented procedures for reviewing lease changes, obtaining necessary approvals, updating financial records, and generating revised journal entries.
Regular internal audits, annual reassessments, and staff training are vital to keeping lease data accurate and maintaining compliance. Establishing a schedule of periodic reviews and building accountability into day-to-day processes helps ensure your organisation remains IPSAS 43-ready year after year.
In conclusion, implementing IPSAS 43 is a significant undertaking, but it’s also an opportunity to enhance lease governance, improve operational efficiency, and drive better financial insight. By following these five detailed steps, public sector entities can reduce the complexity of transition, stay ahead of compliance requirements, and build stronger internal processes.
Ready to start your IPSAS 43 journey? Book a demo with Nomos One today and discover how our dedicated lease accounting solution can help your organisation prepare, comply, and lead with confidence.
