EMPLOYERS could be forced to rethink their fleet policies under international accounting proposals that would oblige companies to record contract hired vehicles on their own balance sheets.

The changes may create a wave of demand for in-house fleet management expertise and create a renewed focus on cash- for-car schemes, fleet experts believe.

Businesses have been attracted to contract hire because it allows them to remove vehicles from their balance sheets. The vehicles appear instead on the balance sheet of the leasing company.

The International Accounting Standards Board (IASB) is reviewing the balance sheet treatment of leased assets ranging from cars to 'big ticket' items, in a bid to introduce greater transparency to corporate balance sheets and better serve the interests of shareholders.

It believes the off-balance sheet treatment of contract hire unduly improves companies' financial figures, because businesses appear to make a higher return on capital employed than similar businesses that outright purchase equipment and are forced to record them on their balance sheets.

The IASB is likely to recommend that any asset (whether leased or purchased) worth more than a certain value and used by a business for longer than a specified period should be registered on a company's balance sheet.

This will include cars, although the minimum time limit should avoid the need for fleets to record daily rental cars on their balance sheets.

Fleet consultant Stewart Whyte, managing director of Fleet Audits, said: 'Many companies will not accept the value of their fleet appearing on their balance sheet. This could be an issue that exacerbates their pulling out of fleet and going for a cash-for-car option for employees.

'But for large companies, leasing cars is only a small part of the problem, as they may also lease buildings and other equipment, so the firm may need to rely on an in-house fleet expert to take on the problems facing the fleet.'

However, off-balance sheet funding is only one of several advantages of contract hire, according to the British Vehicle Rental & Leasing Association.

It argues that many businesses choose contract hire because it delivers reduced fleet administration, known fixed-cost finance, and the transfer of residual value and maintenance risks. John Lewis, director-general of the BVRLA, is keeping a watching brief on the IASB's attempts to standardise accounting procedures across Europe.

He said any changes are far from a foregone conclusion, dismissing early speculation as 'scaremongering'.

'I understand that the IASB would want to get outstanding assets on operating leases shown on the balance sheet for publicly quoted companies to give their shareholders a view of their liabilities,' he said.

'But anyone who says this is a foregone conclusion is speculating. We know it is likely to be tackling this no earlier than Autumn this year which would mean there are no changes planned earlier than 2005.'

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