The International Accounting Standards
Board (IASB) is proposing to change dramatically the rules
governing lessee accounting – and it wants comments from fleet
providers on the outlined framework before 17 July.
Under the IASB’s outlined new regime for lessees,
set out in a recently published discussion paper, Leases:
Preliminary Views, it is envisaged that end-users of leasing
services will have to account for lease rentals on balance sheets
as a liability.
Go deeper with GlobalData
This will involve moving away from the current
system whereby finance leases are shown on balance sheets, but
operating leases – including contract hire – are not, as ownership
of the asset is deemed to stay with the lessor (see Motor
Finance, March 2009).
In addition, the IASB’s proposals set out an
obligation on lessees to account for options included in a lease –
for example, to calculate the probability that a given asset, such
as a car, will be kept for its initial three-year contract only, or
whether that contract will be extended.
Overly complex?
There are worries within the industry
that these proposed changes could prove a disincentive to
lease.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataEuropean leasing trade association Leaseurope
commented: “The European leasing industry is concerned the standard
setters are considering an excessively burdensome approach for
accounting for leases.”
Alan Lunt, finance director at Lloyds TSB
Autolease, warned: “While the commercial elements of leasing will
not change and therefore the 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.”
Senior project manager at the IASB, Rachel Knubley,
urged fleet providers to write to the IASB, and to make their views
known.
“If fleet lessors disagree with the proposals, it
is important that they set out alternatives,” Knubley said. “We are
looking for comments on the discussion paper to see if what we are
doing is right – if users say this will not provide the best
process, we will listen.”
The discussion paper currently only deals in depth
with lessee accounting. Changes to accounting for lessors are also
on the horizon, but plans to tackle lessors along with lessees have
been shelved, given the complexity of the subject.
