How to ease your education budget worries
Chris Labrey, MD of Econocom, discusses new IFRS rules, and why tech leasing and as-a-service models are preferable for education institutions
Funding technology without depreciation
Budgets are a contentious subject in the education sector. While the OECD has ranked the UK as the third-highest for total education spending, other analysis shows that spending as a percentage of GDP has fallen by 25% in the last seven years. And with figures suggesting that one in three secondary schools are in deficit, it’s not surprising that the mere word ‘budget’ can evoke a number of reactions.
However, technology is one area in which educational establishments need to invest. It has the power to engage students in the classroom, give access to instant information and it can improve pedagogy as well as the whole learning experience. Add to this the fact that today’s students are digital natives and that they will be expected to use technology effectively in the workplace, it seems nonsensical not to give them the same opportunities in the classroom.
The government also supports the effective use of technology within the classroom and recently it launched a policy paper outlining a technology strategy for education providers. But the challenge still remains in how to achieve this with a limited budget.
Accounting changes to technology leases
This is why many educational establishments have opted for lease contracts to fund their technology requirements. This approach not only eases the burden of an upfront investment, but it also allows them to implement the required technology while smoothing payments to protect their capex budgets.
However, January this year saw the introduction of International Financal Reporting Standard (IFRS) 16 which removes the distinction between finance and operating leases. All leases now need to be recorded on the balance sheet as liabilities at the present value of the future lease payments, as well as an asset over the lease term. And although these changes only currently apply to PLCs and business that already report to IFRS, other public sector bodies need to be prepared to be compliant from 2020.
In essence, any payments on the lease agreement have to be reported as a liability on the balance sheet and any depreciation on the asset and interest on the lease liability need to be shown in the profit and loss accounts. In addition, any expenses concerned with the total cost of ownership of the technology, such as maintenance and disposal, also need to be accounted for. This certainly adds to the complexity of the procurement process and many educational establishments won’t have the time or expertise to put additional resource into this process.
Benefits of a subscription and as-a-service models
This is where working with a technology partner that understands the options and implications of technology investments for educational establishments and can structure payments for usage, including maintenance and disposal costs, pays huge dividends.
For instance, there are a couple of caveats to IFRS 16: a lease with a shorter than 12-month term and which does not have an option to buy the leased item at the end of the lease is exempt, as is one with a value of less than $5000.
Therefore, in order to fully adapt to the changes within IFRS 16 and make the changes work within any educational establishment, it’s imperative to choose a partner that is more than a leasing company.
Companies that use subscription and as-a-service models should be the technology partners of choice. Additionally, not all partners are adept at managing the associated total cost of ownership with technology products. Sometimes the most expensive part of the technology can be its maintenance and disposal costs. With the new rules in IFRS, it is of paramount importance to trust a partner to effectively manage these costs throughout the technology lifecycle. In addition, partners need to provide a service which budgets for a significant return on the technology at the end of the lease term, and manages its disposal or redeployment in a sustainable fashion.
Education for the future
In its edtech strategy, the government outlines areas of opportunity where technology can really make a difference to the education sector. These include: reducing the administration burden, improving student assessment, improving educational outcomes, supporting educators with continuing professional development and helping encouraging learning throughout life.
No one would deliberately put a barrier in the way of delivering these educational outcomes, but a lack of budget could be one. Subscription and as-a-service models are not going to solve the funding situation within the educational sector, but they can go a long way to easing the effects of a limited budget and financial regulations.
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