Q&A: Alan Lunt: Finance Director, Lloyds TSB
Autolease; Chairman, Accounting and Finance committee,
BVRLA
Q: Could the added complexity of accounting for options
such as usage/mileage under the proposed changes cause fleet
managers to conclude that leasing is too complicated, precipitating
a move back into cash-for-car or employee car ownership
schemes?
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A: While the commercial elements of
leasing will not change, and therefore ultimate cost of leasing the
asset will stay the same, the additional accounting administration
by a lessee may well prove a disincentive and force them to look at
other forms of finance.
Certainly, the complexity around
accounting for options and estimated term of leases for a
multi-vehicle fleet may well prove a burden fleet managers and
business in general find too time-consuming and costly.
This in turn could lead to the
reconsideration of alternatives away from leasing and could see
employee car ownership schemes gain more popularity.
Q: Do you think there is an
argument for treating a lessee’s fleet as a unit made up of a
number of standardised leases, rather than having to calculate the
rights and obligations flowing from each individual vehicle lease
contract?
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By GlobalDataA: Yes, this would be one of the ways
possible to achieve simplicity and reduce the accounting
administration burden.
Q: What is your opinion of the
proposal to require lessees to estimate the probabilities of
whether they will take up options to extend lease contracts – e.g.
a 40 percent chance the vehicle will be handed back after three
years, 25 percent chance after four years, 35 percent after
that?
A: I think this is unrealistic, and
will ultimately lead to pointless heated debates between finance
department managers and external auditors. I think fleet leases
should be reported on the length of the primary period as stated in
the contract, thereby avoiding any ambiguity, and keeping it
simple. Only at the point it is extended or moves into a secondary
period should some estimation then take place.
However, this is a tough one for the
IASB, as if we look at property leases it would be reasonable to
expect some level of estimation around contract length, since
property leases are typically extended well beyond the initial
primary period/first break point.
Q: The IASB’s project manager
has made the point that, while an individual car lease is a
small-ticket item, a fleet of leased cars can add up to a sizeable
value, and lease payments should therefore be recognised on the
balance sheet as an obligation. What is your view on
this?
A: We live in an age where paying for
the use of a set of assets rather than their outright ownership is
increasingly commonplace. Where material, balance sheets should
recognise both the benefit this bestows on an entity and also the
obligation it has to pay for the use of the asset.
