Critics say proposed new rules
may restrict lending.
Go deeper with GlobalData
New lease accounting proposals have
sparked disquiet among lessors who claim they could have a negative
impact on business.
However the British Vehicle Rental
Leasing Association (BVRLA) said its members were well placed to
adapt their business models.
BVRLA chief executive John Lewis
said: “Our members already advise fleet operators on how to reduce
costs and emission and I am confident they can add more value by
helping customers with their reporting requirements.
The exposure draft on lease
accounting was issued by the International Accounting Standards
Board (IASB) after an ostensive consultation with the leasing
industry.
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By GlobalDataIndustry commentators, including
the BVRLA, have criticised the IASB for ignoring requests made
during the consultation process, including calls to keep the
standards simple.
Lewis said: “It is unfortunate that
the standard-setters were unable to come up with a simpler way of
accounting for short-term, low-value leases like those used in our
industry, which do not usually have a material im-pact on a
company’s accounts.”
On the lessee side, the proposals
adopt a right of use model, by which a lessee would recognise an
asset, the right to use the leased items, and a corresponding
liability on it balance sheet.
Therefore lessees will be required
to make complex estimates about their lease terms and payment, and
to reassess these at each reporting date.
On the lessor side, it proposes a
choice of two approaches. The de-recognition model would
de-recognise from the lessors’ books the portion of the leased
asset transferred to the lessee by virtue of the lease.
The performance obligation model
keeps the entire asset on the lessors’ books and recognises a
liability for an obligation to continue to provide the lessee with
the asset over the lease term.
The Finance and Leasing Association
(FLA) argued that the rules will restrict banks’ ability to lend,
because they are obliged by capital requirements regulations to
maintain minimum levels of funds in relation to their
liabilities.
‘Mish-mash’
FLA head of asset finance Julian
Rose said: “The IASB’s proposals involve taking real numbers and
replacing them with a mish-mash of accountants’ assumptions,
estimates and adjustments.
“To propose these arcane and costly
new regulations on UK businesses so soon after the recession makes
no sense.”
Leaseurope, another critic of the
IASB plans, claimed that the proposals are being steam rolled
through with scant attention to lessors’ concerns, in order to meet
an IASB deadline for convergence with US Generally Accepted
Accounting Principles.
Leaseurope director general Tanguy
van de Werve said: “We are disappointed the IASB and US Financial
Accounting Standards Board have not yet taken on board the feedback
that we and many others have provided.”
Van de Werve called on the European Commission to carry out a
robust impact assessment before integrating the proposals into
law.
