Proposed Changes to Accounting Standards for Leases
As many of you will already know, the IASB and FASB (the organisations that "regulate" the accounting practices of many countries) have issued a Discussion Paper relating to the treatment of leases. In broad terms the Paper proposes to treat all leases (both operating leases and finance leases) according to one method, with lessees having to recognise a "right of use" asset in it's Balance Sheet along with a corresponding "rentals obligation" as a liability.
According to the IASB, the key reasons why they propose changes are:
- The current standard fails to reflect all assets and liabilities.
- There are different treatments for what they consider as similar transactions.
- The current standard encourages a "structuring" of some transactions.
- The current standards are complex.
LeasePlan has reviewed the Discussion Paper and a summary of our findings are:
- We concur with the objectives of the Paper.
- The proposal provides no differentiation between very different products. Consider the financial lease product for a big ticket item such as an aircraft versus a fully maintained operating lease and fleet management product for a light vehicle fleet. The key reasons for entering into these transactions are very different as is the opportunity to "structure" the transaction.
- The Discussion Paper does not meet its own objective of making the standards less complex.
- No information has been included as to how the Lessor should treat leases under the proposal.
Click here to read a Briefing Sheet published by KPMG on this matter. Our thanks to them for allowing us to circulate this document.
At this stage our suggestion is to keep abreast of developments in order to understand its implications and the potential for impact on your business decision-making. LeasePlan will provide updates on the progress of this proposal. The IASB have indicated an intention to produce a new Accounting Standard by mid 2011.
Charles Willmer
Managing Director
LeasePlan