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UK Car Leasing Association Wants Simplified Standards

Robert Lee,, London

24 December 2010

Accounting-standard setters need to simplify their proposals for leasing to achieve their goal of bringing more transparency to company accounts, claims the British Vehicle Rental and Leasing Association (BVRLA).

The association has called on the International Accounting Standards Board (IASB) to re-examine its plans to bring all leased assets and liabilities onto the balance sheet. The message was delivered in the BVRLA’s response to an IASB consultation on the proposals, which has just closed.

“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.”

The BVRLA’s response highlights a number of issues that it believes the IASB urgently needs to address – contingent rentals, excessive burden, short-term leases and the transition period.

The BVRLA says that instead of focusing solely on closed-end, fixed term rentals payable under their lease agreement, the current proposals will force companies to make their own subjective estimates on the impact of ‘contingent rentals’ – unpredictable charges that can include things such as lease extensions, excess mileage and damage fees. It says that this added complexity will not deliver the comparable and transparent reporting the IASB is looking for. 

It believes that although the proposals are aimed at discouraging the ‘structuring’ of large individual leases, they will end up being very burdensome if applied to thousands of individual, small-value leases; and that if the board does insist that contingent rentals are accounted for, companies should be allowed to do so on a portfolio basis (ie across the whole fleet) rather than individually. 

The association also believes that low value transactions lasting less than 12 months should be excluded from the proposals saying that in the vehicle rental business customers do not specify a specific vehicle, and this type of arrangement should be viewed as service contract. 

Finally the BVRLA believes that affected firms should be given a minimum of four years to make the necessary system and process changes required to meet the new accounting requirements.

The BVRLA says that it is confident that the proposed standards will not erode the key commercial benefits of leasing, but it is keen to ensure that they do not put an excessive accounting burden on businesses that are not trying to hide anything. And whatever form the new leasing standards arrive in, the association believes that its members will be able to help their customers meet any new reporting requirements.

The IASB is now expected to review the consultation responses before publishing a final standard in the first half of 2011. 

TAGS: tax | business | accounting | corporation tax | fees | International Accounting Standards Board (IASB) | standards

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