F&I Management & Training

Leasing and rental will retain their status as essential forms of vehicle finance despite the introduction of new lease accounting proposals announced by the International Accounting Standards Board today.

The British Vehicle Rental and Leasing Association is 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 require any publically quoted companies leasing assets - computers, vehicles or property, for example - to account for them, 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 (leasing customer) would identify the right to use a leased asset on its balance sheet and incur a corresponding liability for future rental payments.

The board consulted widely before finalising the new proposals and has tried to make them as simple as possible in order to reduce the extra reporting burden on lessees. Initially, 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. There is no date set for this at present.

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, Gerry Keaney.

"Leasing has proved its value, sheltering companies from the risk of fluctuating vehicle values, providing them with extra flexibility and purchasing power and freeing-up precious working capital that would otherwise have been spent buying an asset.

"Our members already advise customers on how to reduce fleet costs and emissions and I am confident they can add even more value by helping them with their reporting requirements."

Following the current consultation the IASB will publish a final standard towards the end of 2013. There will be a transition period before the new standard becomes mandatory in a few years' time.

DATED: 20.05.13

FEED: HA