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SMEs could be hard hit by new accounting standard

By / 11 years ago / Latest News / No Comments

Under the new proposals for lease accounting, businesses will be required in the future to account for all of their lease and rental arrangements on their balance sheets – this includes operating leases.

According to Leaseurope, the European leasing industry' s representative body, standard setters'  work on lease accounting has so far been focused on developing new requirements for lessees. These are extremely complex and will affect almost all European businesses given that there are very few firms in Europe who do not lease or rent equipment or property at some point in time.

Recently, the IASB has announced that they will also consider accounting from the perspective of lessors. Although Leaseurope agrees that lessee and lessor accounting should be dealt with together, there is growing concern with the direction that the proposals for lessor accounting are taking. If they go ahead in their current form, many businesses may see their overall cost of borrowing rise, says the organisation.

Mark Venus (BNP Paribas), chairman of Leaseurope' s Accounting Committee, said: 'European businesses will have to cope with what is turning out to be an extremely complicated approach to lease accounting. Leaseurope, as well as other stakeholders, have repeatedly raised this issue with the IASB yet there is still no visible sign of improvement.

'In addition to this, if the lessor accounting proposals have the effect of limiting the availability of leasing as Leaseurope expects they may, smaller firms in particular could have a much harder time financing their investments. These are firms with limited sources of external funding to begin with and, without the benefit of the collateral that leasing naturally incorporates, their borrowing may become more costly and difficult to obtain.'

Leaseurope has made its concerns known to the IASB in a recent letter, available on the IASB website.

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