LEASE accounting – it’s all changing! Ring the alarums….
(But leasing stays the same.)
That’s about the sum of it, says the BVRLA about the new lease accounting rules.
The International Accounting Standards Board (IASB) has changed the standards for reporting operating leases to make them an on-balance sheet liability (IFRS 16 Leases).
Hans Hoogervorst, IASB chairman, explained the move:
“These new accounting requirements bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s often-substantial lease obligations.
“The new standard will provide much-needed transparency on companies’ lease assets and liabilities, meaning that off balance sheet lease financing is no longer lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy.”
But the BVRLA’s chief executive, Gerry Keaney, said it was business as usual.
“Vehicle leasing continues to grow in popularity and this has very little to do with any balance sheet advantages.
“Its main value comes elsewhere, sheltering companies from the risk of fluctuating vehicle values, providing them with extra flexibility and purchasing power and freeing-up precious working capital that would otherwise have been spent buying an asset.
“Our members already advise customers on how to reduce fleet costs and emissions and I am confident they can add even more value by helping them with their reporting requirements.”
The new IFRS standards will only apply to public sector organisations and firms that report to International Financial Reporting Standards (IFRS). That means most UK firms, which report to the UK’s Generally Accepted Accounting Principles (GAAP), will remain unaffected until such time as GAAP and IFRS standards converge.