These departments should talk to each other about financial leasing

Do you have more than 50 employees in Denmark, Sweden or Norway? If so, there is a good chance that your leasing contracts should be dealt with as investments in the accounts. This means that all departments that enter into such contracts should have a chat with the finance department.

Norwegian businesses have come a long way with regard to focusing on core activities and avoiding binding capital in more peripheral areas. The flip side of the coin is a veritable jungle of contracts for the delivery of everything from leased vehicles and rent contracts to IT licences and coffee machines.

Companies that need to be fully aware of financial leasing
It can be challenging enough to maintain an overview of all the contracts, the associated terms and conditions, renewal dates and internal contacts. In addition, some major leasing contracts are to be dealt with in the accounts as if they were investments.

Does your company fulfil two or three of the following criteria?

● At least 50 employees
● At least NOK 70 million in turnover
● At least NOK 50 million in balance sheet assets

If so, you should be aware of the requirements on recognising financial leasing contracts on your balance sheets, which apply in all three Scandinavian countries (NRS 14 in Norway, K3 in Sweden, Accounts Class C in Denmark).

Features that distinguish financial leasing
The regulations on financial leasing state that a contract is to be entered in the balance sheets if it fulfils various conditions, while operational leasing contracts are not to be entered in the balance sheets. What distinguishes a financial leasing contract? Here are some of the typical features of such contracts:

● You have full risk for the asset during the contractual period, including responsibility for repairs and maintenance.
● You have full control of the asset and receive all financial gains from its use.
● When the leasing contract comes to an end, the financial value of the asset will be extremely low – i.e. it is a purchase in instalments in practice.
● The present value of the leasing expenses is higher than what it would cost to purchase the asset “up front”.

Departments have to talk to one another
It is naturally the finance department that holds overarching responsibility for ensuring that financial leasing contracts are dealt with correctly in the accounts. However, when leasing contracts are entered into on multiple levels in the company, it is essential to make sure that the information is centralised.

The IT department, various operative departments, the HR department, the purchasing department, the property department … They must all talk to the finance department about their leasing contracts and the terms and conditions regarding right of use, payment, liability, residual value and so on.

How are the contracts to be processed from one year to the next? It is tough to start from scratch every year, or to have to update spreadsheets. Smart companies use tools that make the work easier; solutions that provide assistance with calculations for the accounts, with notifications before contracts expire, references to where the contracts are stored … and many other useful functions.

House of Control has developed a module for providing complete control of the company’s financial leasing contracts, with many of the same properties as apply to the IFRS 16 module. This provides the CFO with complete control of all key data in the leasing contract, including price, duration and notice of termination. It is a module that presents fast and rapid data for the accounts, and which also offers extremely good reporting options.