IFRS 16 - Efficient lease accounting with SAP RE-FX or SAP Contract and Lease Management (CLM)?

A differentiation and decision aid

With the introduction of IFRS 16 Lease accounting has fundamentally changed. Lessees are now required to recognize almost all lease agreements on their balance sheet – with a right-of-use asset on the asset side and a corresponding lease liability on the liability side. For many companies, this means significantly greater complexity in processes, data management, and valuation.

SAP S / 4 HANA provides with SAP RE-FX (Flexible Real Estate Management) and SAP Contract and Lease Management (CLM) Two established approaches are available for implementing IFRS 16 in a compliant, integrated, and audit-proof manner. This article provides a structured overview of both options, their application scenarios, and decision criteria from a consultant's perspective.

IFRS 16 – Requirements from an IT perspective

IFRS 16 sets clear professional and technical requirements for IT systems:

• Identification and classification of leasing contracts
• Separation of leasing and service components
• Initial valuation of the lease liability (present value of the lease payments)
• Subsequent valuation including interest expense, depreciation and revaluation
• Handling of contract changes
• Extensive appendix information and reporting

SAP S/4HANA does not address these requirements via a separate module, but rather integrates IFRS 16 deeply into existing contract, asset and financial processes.

Mapping IFRS 16 with SAP RE-FX

SAP RE-FX This is the classic SAP module for managing real estate and leases. It is particularly suitable for companies with a high proportion of... Real estate and land leasing, such as:

• Real Estate Management
• Trading company
• Industrial companies with production and storage areas
• banks and insurance companies

IFRS 16 functionalities in SAP RE-FX

SAP RE-FX offers extensive standard functions for IFRS 16 mapping:

• Classification of contracts as leases
• Automatic determination of usage rights and lease liabilities
• integration into SAP FI, FI-AA and CO
• Regulation-compliant subsequent valuation including interest calculation
• Mapping of contract changes and term adjustments
• IFRS 16-compliant reporting

The activation of IFRS 16 logic is achieved via valuation rules and valuation areas, so that parallel accounting standards (e.g., German Commercial Code (HGB), IFRS) can be mapped.

Implementation of IFRS 16 using SAP Contract and Lease Management (CLM)

SAP CLM CLM is the strategic SAP solution for the central management of all types of leasing and contractual relationships. Its modular design makes CLM particularly attractive for companies with heterogeneous leasing portfolios, e.g.:

• fleets
• IT and hardware leasing
• Machine and plant leasing
• Service-related contracts with leasing components

IFRS 16 functionalities in SAP CLM

SAP CLM was explicitly developed with IFRS 16 in mind and offers:

• Central contract registration and classification
• Separation of leasing and non-leasing components
• Automatic valuation according to IFRS 16
• Integrated mapping of modifications
• Direct integration with SAP FI (Universal Journal)
• Standardized IFRS 16 reports

SAP CLM is fully S/4HANA optimized and uses modern data models and Fiori interfaces.

SAP RE-FX or SAP CLM – which module is the right one?

Decision criteria for using SAP RE-FX or SAP CLM can include the focus of the type of leasing, the company's orientation, and the SAP technology already in use.

If both real estate and fixed asset leasing exist, a combination of SAP RE-FX for real estate leasing and SAP CLM for other leasing contracts may be useful.

In a nutshell:

Success factors for IFRS 16 implementation

Regardless of the chosen module, the following points are crucial:

• Clean contract data and clear leasing definitions
• Clear distinction between service and leasing components
• Well-thought-out customization of the evaluation logics
• Close coordination between the specialist department, accounting, and IT
• Early involvement of SAP and IFRS experts

SAP S/4HANA provides powerful tools to implement IFRS 16 efficiently, transparently and in an audit-proof manner. SAP RE-FX impresses with its depth in real estate leasing, while SAP CLM It scores points as a flexible, future-oriented solution for a broad leasing portfolio.

The right module strategy is less a technical decision than a strategic one. A thorough analysis of the leasing landscape and experienced SAP consulting are key to a sustainable and audit-proof IFRS 16 implementation.