Industry groups are
stressing the importance of getting the standard right – rather
than rushing to meet the June deadline. Nick Huber
reports.
Go deeper with GlobalData
Leasing
industry groups have reacted positively to the delay of the
controversial accounting standard proposed for leases, after
warning the new rule would be too complex and would increase
compliance costs.
The final version of the
lease accounting standard, which will put more than $1trn (€707bn)
of leased assets on corporate balance sheets, was supposed to be
published in June.
In mid-April, however, the
International Accounting Standards Board (IASB) and its US
counterpart, the Financial Accounting Standards Board (FASB),
announced the release date for the final standard would be pushed
back by “a few more months”.
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By GlobalData‘A target, not a
deadline’
FASB chairman Leslie Seidman,
said the June date was always intended as “a target, not a
deadline” and more time was needed to address the various issues
raised since the release of the original draft of the standard in
August 2010.
As Leasing Life went
to press the IASB, which sets accounting standards for the European
Union that are also followed by a number of other countries, was
due to give a date when the final leasing standard would be
published.
Leasing companies expect the
final lease standard to be released at the end of this year, in
line with a deadline set by the Group of 20 (G20) major economies
for the convergence of international financial reporting standards
(IFRS).
The delay follows a lobbying
campaign from the leasing industry for more consultation on the
standard amid concerns it was being rushed to meet the June
deadline.
Julian Rose, head of asset
finance at the Finance and Leasing Association, the UK trade
association for the consumer credit, motor finance and asset
finance sector, said: “The standard setters have made the right
decision to delay finalising the new accounting rules.
“The changes from current
lease accounting rules are extensive and need further
consultation.”
Jukka Salonen, chairman of
Leaseurope, the trade body representing the European leasing and
rental industry, said: “Although the boards had begun to consider
how to adapt their proposals in response to this feedback, there
were concerns that they simply would not have the time to resolve
the many outstanding issues identified and produce proportionate,
high-quality accounting requirements for leases.
“The boards’ acknowledgement
that more time is needed is therefore a clear signal they are
listening to these concerns. It is important they focus on getting
the new standard right rather than on trying to meet a June
deadline at all costs.”
When the IASB published an
exposure draft of the lease accounting standard in August 2010, it
attracted nearly 800 comments.
A number of
changes
The IASB has made a number of
changes to the lease accounting standard during its consultation in
response to industry concerns.
For example, the definition
of a lease has been clarified, while lease payments that can vary
from month to month and are common in the retail industry will not
be covered by the standard in its current form.
Its revisions do not appear
to have fully satisfied many leasing companies, accounting experts
and business groups. In a survey published in March,
PricewaterhouseCoopers (PwC) estimated the new lease accounting
standard would affect around $1.2trn in gross lease
obligations.
Another PwC survey, published
in October 2010, also found half of European lessees could move
away from leasing in the future as a result of the proposed changes
on lease accounting.
Companies may decide that
leasing relatively cheap but high volume items, such as BlackBerry
handsets or photocopiers, is not worth the “accounting hassle”, and
may opt for outright purchase instead, said John Williamson, a PwC
director and an expert in lease accounting.
The new accounting standard
could also force companies to track thousands of leased assets –
ranging from photocopiers to heavy machinery, to property – and put
them on the balance sheet.
Retailers, some of whom may
have thousands of leased properties, are among those who would be
most affected by the new standard.
The British Retail Consortium
(BRC) is concerned about the cost of the proposed accounting
change, and that it could make leasing less attractive to
retailers.
The BRC said it welcomed the delay to the lease accounting
standard, but added that, despite some revisions to the draft
standard in response to feedback from business, it was still
concerned the costs associated with the new standard might outweigh
the benefits.
