Fears are growing that new rules governing the way fleets account for leased vehicles will force some to look for alternatives to leasing. It is also suggested that the new rules could lead to lease costs increasing.

The new European rules, which should come into force in 2011, are designed to bring uniformity on how companies account for leased assets. 

However, experts say they are over-complicated and will add significantly to accounting costs.

“We are more concerned about the complexity of the new regulations that preparers of accounts could have to cope with,” said Stephen Sklaroff, director general of the Finance and Leasing Association, which hosted a conference for the leasing and accounting communities.

At the conference, ‘Putting Leasing on the Line’, which was attended by more than 100 lease and accounting experts, 39% of delegates said they believed the new rules will add a “considerable cost burden” to companies that lease their vehicles.

The new rules mean all leases must be accounted for as assets and liabilities – the asset of having the use of a vehicle and the liability of having to pay for its lease.

Currently, accounts just recognise lease payments as an expense.

Rudiger von Folkersamb, chairman of Leaseurope, said: “Firms do not want to account for these assets – they just want to pay for the miles they drive.”

Some leasing experts suggest that the introduction of the new rules, which are still open to consultation, could push companies away from leasing vehicles altogether. 

“It will be expensive and timely to report,” said von Folkersamb. “You have to wonder whether they will continue to lease.”

William Bosco, a leasing consultant and member of the Lease Accounting Project Group established by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board, added that if the new rules are as complex as expected, they will offer little additional benefit at a disproportionately higher cost. 

This, he agreed, will lead to some companies questioning whether they should continue to lease vehicles.

But things need to change. “The existing standards do not work,” said Rachel Knubley, IASB project manager. She added they are complex, fail to meet the needs of the financial community and are ‘conceptually flawed’. 

However, Knubley conceded that the proposed rules could be a “significant source of complexity for some firms”.
Under the rules, companies must also predict the likely lease lengths and reassess these at regular points.

While the new rules are still open for discussion, there are already some loopholes being identified. 

For example, it is suggested that short-term leases – those under 12 or 18 months – will not fall within the rules’ scope. 

This could lead to 364-day contracts becoming the norm for leases.

A discussion paper is open for comment until July 17 at www.iasb.org