Speak up to avert
accounting mess

Phot of Mark VenusThe new lease accounting standard is not a done deal.
We still have an opportunity to change and shape lease accounting,
and should make the most of it.

The boards seem in their
approach to be excessively concerned with structuring. Some leases
are structured, but leasing is not a structuring industry. A few
thousand structured leases should not call into question thems of
standard equipment leases that are in place.

The right answer would be to
tighten up International Accounting Standard 17 disclosure
requirements, and to remove the bright lines from US Financial
Accounting Standard 13. Although IAS 17 does not have bright lines
to define operating leases and finance leases, its application is
influenced by the FAS 13, and the 10% and 75% rules.

Leaseurope’s position on the
lessee accounting proposals is that leases for fungible and readily
exchangeable equipment should be considered as service contracts;
and that leases for less than 12 months should receive the same
treatment.

Optional period and
contingent rentals (those not linked to a rate or index) do not
constitute lessee liabilities and should be ignored. Asset and
liability should depreciate via the annuity method to remain
aligned.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

Lessor accounting is where
the board has really lost its way. Performance obligation is an
aberration, derecognition is a perfectly adequate method for the
vast majority of leases. Short-term leases and service contracts
can be catered for by accruals accounting.

As for lessee accounting,
rentals in optional periods and contingent rentals do not
constitute lessor assets, and should be excluded.

Another major concern is the
proposed reduction of scope of the standard. Leases – even those
that transfer the essential of risks or benefits of the underlying
asset – are not sales or purchases, and should not be accounted for
as such. This raises dangers related to recognition of property
rights, supervisory issues and tax status.

At the other end of the
spectrum of scope, the boundary between a lease and a service
contract needs to be more clearly defined; and the scope to
consider leases of fungible and exchangeable assets as being
service contracts must be introduced.

This would considerably
reduce the complexity of accounting for the lessee, and go some way
towards making the proposed standard workable.

The new standard should also,
of course, including intangible assets.

As it stands the exposure
draft is unacceptable, and, in the opinion of many, unworkable. The
International Accounting Standards Board (IASB) should take the
time to get it right. This is feasible, provided it relaxes its
self-imposed deadline to converge with US GAAP.

In the absence of any detailed impact from the IASB, the
period of commentary is vital. There is still time to send in your
comments to the IASB before consultation ends on 14 December, and
even more importantly, to encourage lessees to respond.

Mark Venus is projects
director BNP Paribas Accounting and Reporting, and chair of
Leaseurope Accounting Committee