BVRLA News
www.bvrla.co.uk September 2010
The newsletter of the British Vehicle Rental and Leasing Association
Lease accounting rules: why they affect all of us The BVRLA believes leasing and rental will remain the dominant form of business vehicle finance, despite a proposed change to lease accounting rules announced last month by the International Accounting Standards Board (IASB).
Although the proposed standards would impose an extra reporting burden, they would only apply to companies that report to International Financial Reporting Standards (IFRS). Most UK firms report to the UK’s generally accepted accounting principles (GAAP) and would remain unaffected.
The association responded to the IASB’s announcement by saying that it was confident its members could adapt their business models and help their customers with any extra information burden that the proposed standards would impose.
Even if a company is affected, bringing leased vehicles onto a firm’s balance sheet would not erode the key commercial benefits of leasing, said BVRLA chief executive John Lewis.
As already reported in BVRLA News (July 2010), the IASB’s proposals are intended to bring all leased assets onto the balance sheet, giving a more complete picture of a business’s financial position.
Action point More detailed information about the proposals and their impact on members and their customers can be found on the BVRLA website.
If introduced, they would ensure publicly quoted companies leasing an asset – whether a computer, vehicle or property – would be required to account for it, giving greater transparency to investors and other users of accounts. This new approach to lease accounting, called the ‘right of use’ model, differs substantially from the current standard, which does not require operating leases to be reported on the balance sheet. Under the new model, a lessee would identify the right to use a leased asset on its balance sheet and a corresponding liability to make rental payments.
“Leasing has proved its value, sheltering companies from the risk of fluctuating vehicle values and freeing precious working capital that would otherwise have been spent buying an asset,” said Lewis. “Our members already advise fleet operators on how to reduce costs and emissions and I am confident they can add more value by helping customers with their reporting requirements.” The IASB consulted widely before finalising its lease accounting proposals, but, according to the BVRLA, seems to have ignored requests to make the new standards simple. “The board has come up with a ‘one-sizefits-all’ proposal which means that a lease will be dealt with in the same way, whether it is a ten-year lease for an aircraft or building worth millions of pounds, or a three-year lease for a car worth £10,000,” said Lewis. “It is unfortunate that the standard-setters were unable to come up with a simpler way of accounting for shorter-term, lower-value leases like those used in our industry, which do not usually have a material impact on a company’s accounts.” Following the publication of the draft standard for lease accounting, the IASB will hold a further consultation before publishing a final standard in the first half of 2011. n
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In this issue Better licensing is ‘too expensive’ says DfT The Department for Transport’s executive agencies cannot afford to upgrade their IT systems page 2 Ash cloud cash: can Cable come through? The BVRLA has called on Vince Cable to back compensation for rental firms that suffered from the volcanic ash-induced flight ban earlier this year page 2 Workplace parking levies attract interest The government says parking levies are up to councils – but they should consult businesses first page 4 Consumer concerns may impact car rental Office of Fair Trading studies of business practices could bring change to the sector page 5 Staged accidents reach record high ‘Crash for cash’ scams are costing insurers £350m a year, says the Insurance Fraud Bureau – learn the telltale signs to watch out for page 5
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