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On January 13, 2016, the IASB, the International Accounting Standard-setting Body published a new Standard, IFRS 16 ─ Leases. This new standard will put almost all lease contracts on-balance.

A lot of multinational enterprises are heavily impacted by the new standard, especially as it has to be integrated within the existing IT landscape. This article describes a solid and fast implementation of a new technology, done by Air France- KLM, to comply with IFRS 16. AF/KL is an early (probably even the first) adopter within this field, which can therefore be used as a best practice by other organizations.

Early Adopter

In the circle of companies subject to IFRS 16, Air France-KLM appears particularly advanced. While this rule will only come into effect for fiscal years beginning on or after January 1, 2019, the airline group applied it early on January 1, 2018. AFKL is strongly affected by this standard as 40% of their fleet of aircrafts is leased and the company has a significant number of real estate contracts. The early implementation is the result of combining multiple IFRS changes starting 2018.

Requirements for Software Selection

The software is needed to support Air France-KLM in their processes with a contract database managing multiple contract levels. All should lead to relevant asset creations and accounting entries in SAP. An additional complexity was that Air France-KLM required postings in multiple administrations. The Right of Use Asset is posted in EUR versus the Lease Liability that may be posted in a different currency. Also, non-SAP companies needed to be connected.

Software Selection & Implementation

The airline adopted SLAN (SAP Lease Administration by Nakisa) software in the deployment phase — to automate the recalculation of debt based on fluctuating parameters. SLAN was a logical solution as AFKL has its backend on SAP.

The implementation of SLAN was performed with the cooperation of a multi-country and multi-functional internal team with the support of external specialists. Since IFRS 16 was completely new, the new software was still “work in progress”. The AFKL main focus was on having the minimum required functionality and after go-live investing in bug fixing and “nice to have” such as user friendliness etc.

Scaling Up

In the summer of 2017 AFKL decided to scale up the project and hired some additional resources on software development and testing. When the software integrated with SAP, AFKL needed to get SAP experienced staff on-board as well. To manage this on a day-to-day basis, AFKL worked together with LINKIT to scale up the team with external resources who had specific skills like SAP Asset Accounting, migration, architecture and project management.

Challenges

Due to the high complexity of the project (technical / functional requirements, financial auditor requirements impacting calculations and scoping) AFKL decided to put one professional in charge of leading the software build.

To remain in control of the sprint planning (for example adding new functionalities), AFKL needed to closely work together with the Nakisa development team. AFKL also required a solid communication and interaction with the supplier since the project needed to be managed and implemented on multiple locations while the core software remained in Montreal with Nakisa until August.

Technical Requirements and complexities

The technical requirements included a Linux based application architecture with a SAP HANA DB, Single Sign On using SAML2 and ElasticSearch with SSL security layer. Using different security packages for ElasticSearch complicated the installation and certification (Nakisa uses X-Pack while AFKL uses SearchGuard).

The Single Sign On using SAML2 was another complexity due to the lack of proper installation and configuration documentation. At the end, AFKL used Singe Sign On based on SiteMinder AD authentication (HABILE) in combination with the SAP Role authorization.

Architecture

To have an idea of the complex architecture used in this project, please check the following diagram: