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November 1, 2010updated 12 Apr 2017 4:18pm

FLA warns on lease accounting

TheFLA has warned that UK listed companies could see a hike in the value of their assets and liabilities if the new lease accounting rules are adopted. The proposed rules mean that assets and liabilities for listed companies would rise on average by £463m most of which would be for property leases at £445m, and the remaining for non-property leases (£18m).

By Antonio Fabrizio

The FLA has warned that UK listed companies could see a sharp rise in the value of their assets and liabilities if the new lease accounting rules are adopted.

The proposed rules mean that assets and liabilities would rise on average by £463m, mostly relating to property leases (£445m), as well as non-property leases (£18m).

Research commissioned by the FLA identifies the companies and sectors most affected by the changes. Arriva, British Airways, BT, Cable & Wireless, Easy Jet, First Group, Go Ahead, TUI, Stagecoach and Vodafone were identified as likely to experience a rise in the value of their assets and liabilities of £28bn.

FLA head of asset finance Julian Rose said: “UK companies need straightforward rules that provide meaningful and stable information to users of their accounts. The current proposals need to be redesigned to reflect the insights which this important new research brings and to avoid acting as a barrier to leasing which brings real economic benefits to companies and the UK economy.”

The 10 companies listed classified 93% of their leased assets as non-property. A substantial part of that figure refers to access to networks: the national rail network, stations and track for transport companies, and leased lines for telecom companies.

The research, conducted by the University of Winchester, shows that property leases are mostly used by wholesalers and retailers, and are spread among most sectors.

The new rules could lead to companies switching to owning rather than renting assets, in order to avoid unexpected changes to accounting measures used by investors including gearing and profitability.

The FLA is calling for the International Accounting Standards Board (IASB) to simplify rules.

Antonio Fabrizio

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