CHEMICALS

Nakisa Lease Administration streamlines lease accounting for organizations
in the chemicals industry.

Many chemicals companies enter into lease contracts to gain access to storage units, pipelines or other assets. IFRS 16 and ASC 842 bring most of these leases onto balance sheets, exposing billions in lease liability across the industry. One of the biggest impacts on this industry is going to be a compliance exercise. Lease accounting technology can help identify everything that meets the definition of a lease, determine if any contracts meet any of the exemptions, such as low value or short-term leases, and perform necessary disclosures.

The primary challenge for the chemicals industry will be arrangements involving fixed assets, which have previously been categorized as ‘operating leases.’ Especially in the chemicals industry where a number of fixed assets are leased, common resources that fall under this category include storage, units, transport hubs and manufacturing molds.

“The financial reporting effects are just the most obvious of the impacts the new standard will have on companies in the chemicals sector. Companies will need to analyze how the new model will affect contract negotiations as well as the impact on key metrics, whether systems are equipped to generate the data requirements of the new reporting and disclosure model, and the impact on business processes and controls around operating leases that will now be subject to recognition on the balance sheet.”