Maintaining your IFRS 16 Reporting values is essential to posting accurate reports. A big part of maintaining these values is recording updates to Agreements correctly. Given the complexity of lease management and lease accounting, sometimes users can input changes incorrectly. This can retrospectively impact the opening balances reflected in the Transition Take Up or Commencement date values you see in Reports.

In this article, we'll show you how to prevent this by identifying the causes and discussing how you can review accidental changes in order to determine what needs to be fixed.

All about opening balances

The opening balance for each of your Agreements is reflected in the Journal Report as “Transition Take Up” or “Commencement” values, depending on when your Agreement commenced (whether before or after your Organisation's Transition Date).

The Opening Balance reflected at the Transition or start date of your Agreement can still be altered retrospectively, if changes are made to Commencement-level data. Our Product Team has introduced a Lock Date as a way to reduce the chance of changes being made between reporting periods, however this doesn't stop all changes. Our team are working to develop further functionality on this. You can follow our guide here if you have accidentally altered your balances. Check in with our Support Team at support@nomosone.com if you need any further help.

How does an opening balance change retrospectively?

Users can update an Agreement at its commencement state. There are two main ways that users do this:

• By selecting Action > Repair Data and editing the Agreement through this view.
• By creating a Variation event and changing one of the following details through it:
  • First Payment Date
  • Commencement Date
  • Payment Period
  • Rent Payment Day
  • Payment Mode
  • The Initial IFRS 16 Questionnaire
  • The Start/End Dates of existing IFRS Component Payments
  • Rent Review Types, Frequency, Dates, and Percentages that fall within existing reporting periods
  • Caps & Floors applied to rent reviews

Changing the opening balance using Action > Repair Data

Accessing your Agreement's data entry wizard using Action > Repair Data updates the data effective from the Commencement date of your lease, meaning that opening balances will adjust to match the changes made. 

For example, let's say someone in your team has been asked to update the 2021 Fixed Rent Review Event on your Agreement timeline, but instead of updating the Event, they:

1. On the relevant Agreement, click “Action”, then “Create / Edit Events”.

2. Change the commencement-level rent amount on the Rent & Payment page, thinking this is how the rent is updated.

As this has updated the rent effective from Commencement, the impact will show from the Commencement or Transition Take Up dates on your IFRS 16 Reports, changing your Opening Balances from what they were when the Agreement was first created.

Changing the opening balance by varying specified data

Although the majority of changes actioned using a Variation event communicate with the IFRS 16 Reports and only impact from the Variation date, some are not yet developed to do so. Some changes will not apply at the Variation date, but rather the Commencement date, thus impacting your opening balance. 

Changes that may be applied through Variation Events that impact opening balances:

• First Payment Date: If you alter this date, the change will display as if the First Payment Date was always the date you have updated it to. For example, if initially the First Payment Date was scheduled to be 1 January 2021, but later this is changed to 1 February 2021, the calculations will not reflect this as a variation, and instead will mark the 1st February 2021 as the only First Payment Date recorded in the agreement's history.
• Payment Period: This records the regular period at which rent payments are made, and if altered will retrospectively update your reports as if payments were always made at that frequency. For example, if initially the Payment Period was monthly, but later this is changed to annually, the calculations will not reflect this as a variation, and instead will appear as if the rent has always been paid annually.
• Rent Payment Day: Similar to the First Payment Date and Payment Period, changing the regular rent payment day will apply retrospectively and your reports will display as if rent was always paid on the newly recorded day.
• Payment Mode: This will retrospectively update your payments to be paid In Advance or In Arrears from the Commencement date, rather than registering as a change made throughout the duration of the Agreement
• The Effective date, Payment date, and Start/End dates of existing IFRS Component Payments: This changes the date of existing payments, so they'll register on the new dates which will change balances. Changing these dates will impact the opening balances if these dates are on or before the Transition Take Up or Commencement date. Otherwise, if these dates are after the Transition Take Up or Commencement date, changing these dates will still impact previous balances (based on the effective date recorded).
• Rent Review Types, Frequency, Dates, and Percentages that fall within existing reporting periods: Modifying rent review dates, types, or rates will apply from Commencement, rather than registering as a change made throughout the duration of the Agreement.
• Cap & Floors: These can only be set at one rate for each type of rent review per Agreement. Currently this cannot be changed unless you want to override the original rate with another (which will change opening balances).

Fixing changes to your opening balance

If you do notice that your opening balance has changed, don't panic, we should be able to identify what the cause was and then revert changes made to reinstate your original opening balance.

Here's some tips on how you can identify the cause:

1. Navigate to the Activity Report. Click “Reports” and then select the “Activity Report”.

2. The Activity Report has a preset filter showing the last month's activity. We recommend removing the filter by clicking “Clear All”, then clicking “Regenerate” so you can see activity for all time.

3. Using the Filter option, enter a filter to only view information for the Agreement wherein the opening balances have changed. The “Target” column displays the Agreement name, so we will enter the filter “Target Is Agreement Name”. This will only display activity for one Agreement.

4. The report output should be ordered by when the activity was recorded, based on the Timestamp column. Scroll to the bottom of the report to review the initial data entered. 
5. Compare the initial data entered with any changes made. If you know the exact date or have an idea of when the opening balance changed, look at the changes made to the Agreement from that date onwards. If you see any changes that don't directly follow creation of a Variation Event, and the changes are Event, Rent, or Payment-related, this is likely why the opening balance has changed.
   1. If there is no activity noting that information has been changed, it could be that the initial IFRS 16 Settings have been altered. Please reach out to our Support Team if you believe this is the case.

6. If you feel confident to revert the changes made, go ahead. If not, feel free to contact our Support Team and we can assist.
7. Once any changes are reverted, check your opening balance. It should match the original opening balance. 

9. If the change made was something you needed to record, but due to system limitations you can't process it, contact our Support Team with your query and they can provide guidance on how you may be able to record this in Nomos One without altering your opening balance.

Nomos One does not provide or purport to provide any accounting, financial, tax, legal or any professional advice, nor does Nomos One purport to offer a financial product or service. Nomos One is not responsible or liable for any claim, loss, damage, costs or expenses resulting from your use of or reliance on these resource materials. It is your responsibility to obtain accounting, financial, legal and taxation advice to ensure your use of the Nomos One system meets your individual requirements.