Dear Sir David,
As chair of the IASB you have done in the past some good work towards quality financial reporting. Will you lose your good name now through the absurd right of use approach for leasing contracts?
You may remember me in connection to my visit to you in 1997 as a former chairman of the European Leasing Association, Brussels.
We had, during the preceeding years, a discussion over the best financial reporting of lease contracts. In the following years the IASB completed IAS 17 Leases. Therefore the decision about the best financial reporting of lease contracts is already made.
Now the IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board) have proposed an entirely new rule which is 100 percent opposed to the established rules IAS 17 and FAS 13, Accounting for Leases.
This, for a man who was one of the creators of leasing in Europe, is disappointing. I cannot and never will accept the right of use approach for leases and rentals on the side of the lessee.
We have a 110 year-old tradition in Germany that floating effective business cannot be real wealth. Therefore there is no reason to bring this business onto a balance sheet. If you do this against this clear and practical law then you will be misrepresenting: Will you put thousands of managers in this position?
In Europe there is no basis for the right of use approach for lease and rental contracts. Please cancel your incorrect paper.
The right of use approach is an instruction for manipulation, and not for correctness on the balance sheet. How can a manager estimate probabilities of extend options? How can a manager see the changes in the conditions in the future? How should he in 2010 decide over a contract which is finished in 2020?
These questions are given a fully negative answer. The decision between operating or finance leases is unchanged.
Why not a right of use for working contracts? Why apply your new approach only to leasing? I am missing the answer from you and your colleges on the IASB and the FASB boards.
You are most wrong in your new concept for leasing. By all means ask for additional figures in the notes, but do not put leases on the balance sheet.
I hope you will not. Therefore please cancel the exposure draft of lease contracts. I hope my disappointment over the reporting of lease contracts will soon end.
Professor Dr. h.c. Klaus Feinen
Co-founder of Leaseurope and Bundesverband Deutscher Leasingunternehmen, the German leasing association.