Leaseurope’s accounting chairman has defended current lease accounting practice against accusations it is used to hide debt and compared the potential reporting model being developed to "conceptual art."
Mark Venus, chairman of Leaseurope’s Accounting Committee, made the comments in response to a speech at the London School of Economics by Hans Hoogervorst, head of the International Accounting Standards Board (IASB), in which he said lease contracts were not recorded on balance sheets "even though usually contain a heavy element of financing."
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He said: "If this financing were in the form of a loan to purchase an asset, then it would be recorded. Call it a lease and miraculously it does not show up in your books.
"If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. So is the case with debt – leasing or otherwise," Hoogervorst added.
IASB and the Financial Accounting Standards Board (FASB) are due to issue a second draft of lease accounting changes for public consultation early next year.
Hoogervorst claimed the leasing industry was running a huge lobbying campaign to resist greater transparency in lease accounting, and said attempts to apply IFRS to leasing could be "lobbied off course".
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By GlobalDataIn a statement issued by Leaseurope, Venus said Hoogervorst did a "disservice to the quality of his international accounting standards", and added while lease structuring might occur in the US, IFRS application elsewhere meant that a lease that looks like a loan for the purchase of an asset is always put on the balance sheet.
Venus discredited Hoogervorst’s comparison of leasing to pension liability, and said: "It is only those contracts that convey the temporary use of an asset, often in combination with a range of related services, which are currently not recorded as liabilities.
"This does not mean that companies are hiding debt, it just means they are not borrowing money to purchase assets. They are simply paying a fee to use an asset that belongs to someone else."
He continued: "We are talking about rental contracts for things like cars, IT and office equipment for instance. And let’s not forget that companies already provide information to investors on the commitments they have under these contracts."
Venus was enthusiastic about the application of IFRS, and said it would be "far more efficient" if the US adopted the principles-based standard, rather than "pursuing the development of a new model which is more like conceptual art than a measure of economic reality."
