Accountancy rules criticised

Proposed new accountancy rules which could affect companies that lease vehicles have been widely criticised as consultation on the changes come to a close.

Under the proposed new rules, organisations leasing vehicles will have to account for the values of these vehicles on their balance sheets.

But Leaseurope says that the move will have a significant impact on businesses, while failing to provide investors, analysts, lenders and credit rating agencies with the financial information they want.

Concerns surrounding the burdens of the proposals have been confirmed by a recent survey of companies, where 75% report that the costs would outweigh the benefits.

In its submission the International Accounting Standards Board (IASB), Leaseurope also highlighted that one of the most fundamental issues that the IASB had not yet tackled was what the definition of a lease contract actually is.

“Leaseurope is of the opinion that they are not close enough to a high quality standard to be able to respect their June 2011 deadline,” said Tanguy van de Werve, Leaseurope’s director general.

“We are therefore calling on them to modify their proposals for lease accounting.”

Similarly, the BVRLA has called on the IASB to re-examine its plans. “Most people accept the need to make major leased assets and liabilities more transparent,” said BVRLA chief executive John Lewis.

“But whether you are talking to leasing companies, their customers or accounting firms, there is almost total consensus that the plans being put forward are over-complicated and will fail to achieve their objective.”

While the rules will only apply initially to an estimated 10,000 large companies that use the international reporting standard in the UK, there is an expectation that the rules will eventually affect many more companies, according to the Finance and Leasing Association (FLA).

It also argues that if the proposals do go through unchanged it could put some companies off leasing and they may turn to outright purchase (Fleet News, November 11, 2010).

The new rules are expected to be finalised and published by June, with compliance expected from 2012.

Meanwhile, HM Revenue and Customs (HMRC) has announced that the tax treatment of leases will remain unchanged if the proposals get the green light.

However, the BVRLA believes this could impose an additional burden on lessors and lessees in capturing and maintaining lease information to comply with differing tax and accounting requirements.

This is because tax rules differentiate between finance leases and operating leases, but under the proposed lease accounting standards both of these would be encompassed by a single definition of lease.