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The British Vehicle Rental and Leasing Association has expressed its disappointment with the new leasing accounting rules announced last week, although it said leasing and rental will remain popular forms of vehicle finance despite the likely extra administration.
The International Accounting Standards Body has revealed proposals that would bring all leased assets onto the balance sheet of publicly listed companies, covering everything from computer equipment to cars. Non-publicly listed companies will also be affected, although it's unlikely to be for at least five years.
The BVRLA said it is confident the move won't erode the key benefits of leasing. "Leasing has proved its value, sheltering companies from the risk of fluctuating vehicle values and freeing precious working capital," said BVRLA chief executive John Lewis. "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."
Lewis said the BVRLA had pushed for a simpler system during consultation, but the request had been ignored by the IASB. "The board has come up with a 'one-size fits all' proposal, which means the lease will be dealt with in the same way whether it's a 10-year lease for an aircraft or building worth millions of pounds, or a three-year lease for a car worth £10,000," he 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 impact on a company's accounts."
Andy?Simmonds, a partner at accountancy expert Deloitte's national office, said the key element of the draft may be that fleets have to account for potential contract extensions, estimating in advance how many vehicles would have their contracts extended. He said the likely result is a change to contractual terms. "This could easily change commercial behaviour," said Simmonds. "If the contract simply says this is a lease, and it runs until then, and there's nothing in the contract about extensions, people would then negotiate at the time. That's the most significant behavioural change."
The draft's publication leads to a further consultation period before the final standard is revealed in the first half of 2011. Fees relating to fleet management, maintenance and other services are set to be excluded, as will short-term hire of less than 12 months. At this stage only publicly quoted firms that report to the IASB standard will be affected, with small- and medium-sized firms that use the Generally Accepted Accounting Principles not set to be hit until the two standards converge, which is expected sometime after 2015.
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