The latest instalment of the lease accounting saga rumbled into life this month. Brian Cantwell analyses what it means for the leasing industry
The latest output in the ongoing saga of the joint lease accounting standard from the International Accounting Standards Board (IASB)and the US Financial Accounting Standards Board (FASB) has been published.
The joint lease accounting standard will make life for the industry a lot smoother.
At the moment if you’re working in stocks or credit analysis and trying to figure out whether to lend a company money or not, it’s hard to look at the accounts of a company and figure out the true profile of its balance sheet, and readily determine what sort of debts exist.
For the IASB and FASB, the task at hand is no mean feat, with feedback generated by an opinionated, disparate group of lessors and lessees, on a truly global level.
The boards’ first response in 2007 was slated. More than 700 comment letters were received, which were highly critical.
The two boards issued a new Exposure Draft in May 2013, which went through the same process. It’s been a bruising experience for both organisations to accept the criticism of their project, and perhaps unduly of their process.
The most recent joint issuance came out this month, which Leaseurope criticised with its concern that none of the standard’s original objectives would be achieved, as per the news story on page 8 of this issue.
Fundamentally the current proposals will produce two standards – one for lessees, one for lessors, which Leaseurope said would inevitably lead to a further review of lease accounting. Generally the market is supportive of the overall principles for lessee accounting on the customer side, despite concerns about implementation, according to industry sources.
Generally responders to the boards were not very supportive for the changes that were proposed for the lessor side, because lessor accounting was not brokered, and lessors are trying to deal with the company leasing the asset, not the finance company they leased it from.
The real operational danger for the leasing community lies in the earlier-than-projected delivery of the standard; 2016, rather than 2018.
Between July and August, the boards made substantial changes, particularly the main changes on the lessor side; they reverted back to the current accounting norms. Many people will perhaps still be under the impression that they have got these big changes on the lessor side. Actually that’s not the case anymore. This is part of the reason CHP and Leaseurope have published consultation papers in response to the proposals this month.
A final standard could start to apply from 2016, and there are system changes the companies need to makenly a year to make them. It’s important to highlight that, despite the fact the changes might be simpler than they could have been, for some lessors there will be important changes to make, and they need to be made in good time.