New lease accounting proposals will not erode benefits of leasing/rental, says BVRLA
That's the view of the British Vehicle Rental and Leasing Association (BVRLA), which says it's confident that its members will be able to adapt their business models and help their customers with any extra accounting burden that the new standards impose.
The IASB’s proposals are intended to bring all leased assets onto the balance sheet, giving a more complete picture of a business’s financial position. If introduced, they would ensure publicly quoted companies leasing an asset – whether a computer, vehicle or property – would be required to account for it, giving greater transparency to investors.
This new approach to lease accounting, called the "right of use" model, differs substantially from the current standard, which does not require operating leases to be reported in company accounts. Under the new model, a lessee would identify the right to use a leased asset on its balance sheet and incur a corresponding liability for future rental payments.
Although the Board’s proposals will impose an extra reporting burden, the new standards will only apply to publicly quoted firms that report to IASB standards. Most UK firms report to the UK’s generally accepted accounting principles (GAAP) and will be unaffected until these converge with IASB standards. This is unlikely to happen for at least five years.
Even if a company is affected, bringing leased vehicles onto a firm’s balance sheet will not erode the key benefits of leasing, according to BVRLA chief executive, John Lewis.
‘Leasing has proved its value, sheltering companies from the risk of fluctuating vehicle values and freeing precious working capital that would otherwise have been spent buying an asset.
‘Our members already advise fleet operators on how to reduce costs and emissions and I am confident they can add more value by helping customers with their reporting requirements.’
However, the BVRLA did accuse the IASB of ignoring requests to make the new standards as simple as possible.
‘The Board has come up with a ‘one-size fits all’ proposal which means that a lease will be dealt with in the same way, whether it is a ten-year lease for an aircraft or building worth millions of pounds, or a three-year lease for a car worth £10,000,’ said Mr Lewis.
‘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 impact on a company’s accounts.’