View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Comment
November 8, 2010updated 12 Apr 2017 4:18pm

Unworkable’: the verdict on new accounting rules

Attempts to explain the changes by Barbara Davidson, International Accounting Standards Board (IASB) technical director, were met by scepticisim at a joint meeting of the FLA and the UK Accounting Standards Board (ASB) in London last week. George Lynn, FLA asset finance chairman, said: This gives us an opportunity to express our incredulity that the standards the IASB have come up with are so complex

By Claire Hack

Leasing leaders have voiced their concerns that proposed new accounting rules are to go ahead despite evidence that they will damage the industry.

Attempts to explain the changes by Barbara Davidson, International Accounting Standards Board (IASB) technical director, were met with scepticism at a meeting jointly hosted by the FLA and the UK Accounting Standards Board (ASB) in London last week.George Lynn, FLA asset finance chairman

George Lynn, FLA asset finance chairman, said: “This gives us an opportunity to express our incredulity that the standards the IASB have come up with are so complex. It’s not merely a book-keeping exercise. The level of complexity in this process will outweigh any benefits for users.”

The new rules mean that those preparing accounts will have to follow about 75 steps in order to provide the information required, many of which must be completed manually.

“We believe the work required will have a very serious impact. This was a sad day for lessors – this is a conference that shouldn’t have been needed. We’ve had a real lack of consultation,” Lynn said.

Lessors are aghast that IASB appears likely to plough ahead with its proposals, irrespective of objections that the new rules will prove excessively costly, time-consuming and onerous. Concerns were also raised that the timeframe in which the IASB plans to complete its consultation is too short: it aims to have the new regulations ready by June 2011.

And speakers reiterated fears that the intricacy of the new regulations would put people off using leasing altogether.

Mark Venus, chairman of Leaseurope’s accounting committee, said the IASB underestimated the value of leasing and the potential damage to the industry the new accounting standard could cause.

“The industry is writing an extremely large number of small value equipment finance leases. The board must bear this in mind. The leasing industry in Europe is funding about 20 percent of production equipment. It’s the largest single form of financing reported by European SMEs. It’s key to SMEs and it’s key to the European economy,” Venus said.

The exposure draft contained a number of “fudges and approximations”, including a “superficial treatment” of cost/benefit analysis, Venus said.

“Not enough corporates are yet sufficiently aware of what they’re going to have to do. At Leaseurope, we think the exposure draft as it stands is probably unworkable.”

The FLA earlier 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 put in place, rising on average by £463m (€533m).

This would mostly relate to property leases at £445m, while non-property leases would stand at £18m.

The research, commissioned by the FLA and carried out by the Winchester Business School, showed companies including British Airways, BT, Cable & Wireless, Easy Jet and Vodafone would be likely to see a rise of as much as £28bn.

The IASB has said the proposed changes to the rules are aimed at improving accounting standards and making them more rigorous.

The board claims they will mean only the most relevant information is included in financial reports and that lessees can no longer deliberately structure lease agreements to keep them off their balance sheets.

Davidson also refuted claims that the board would not listen to objections and comments, and said further outreach events and round table sessions were planned for the coming months.

Claire Hack

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A weekly roundup of the latest news and analysis, sent every Thursday. The leasing industry's most comprehensive news and information delivered every month.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to Leasing Life