New lease accounting rules complicated, contradictory and costly
Brussels, 17 August 2010 - The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) have today released a draft standard on how businesses should account for their lease and rental transactions. The proposed standard contains complex accounting requirements that differ significantly from the existing treatment and will have huge impacts on businesses, potentially limiting their access to assets through leasing and rental.
The draft standard follows a round of consultation in 2009 during which the Boards received more than 300 comment letters, the majority of which stressed the need for the standard setters to simplify their initial proposals considerably. Judging by the document issued today, very little has been done to address these concerns.
Leaseurope, the body representing the leasing industry at European level, is concerned businesses′ views have not been taken into account and that the IASB is simply steamrolling ahead to finalise the leases standard by its June 2011 deadline for converging some of its standards with US accounting standards. Although fully supportive of convergence between IFRS and US GAAP, Leaseurope fears that high quality standard setting for leases is being held hostage to this process.
"To date, the Boards have simply paid lip service to cost/benefit considerations. This is very visible in the draft standard that has just come out. The proposals are more than 100 pages in length only a handful of paragraphs deal with cost/benefit analysis", comments Mark Venus (BNP Paribas), Chairman of Leaseurope′s Accounting Committee. He adds that "leasing and rental provides vital economic benefits for many businesses and there is a risk that these could be jeopardised unless the proposals are substantially simplified. Another cause for concern is the Boards′ proposal for lessors, which is completely contradictory to what is being suggested for lessees. This raises fundamental questions as to whether the Boards have sought to build a coherent overall model and whether the current proposal makes any sense at all. Instead, it seems as though the proposal is trying to paper over some fundamental disagreements between the Boards".
The European leasing industry, together with its counterparts from across the globe, has repeatedly expressed concerns with the way accounting for lessors has been handled. Today′s proposals clearly show that standard setters have been unable to produce a model that appropriately reflects the economics of these transactions for lessors. At worst, this could lead to lessors having difficulty in continuing to provide this key form of finance to businesses. At best, it will be an ongoing burden for lessors, without producing relevant and useful information for users of accounts. Under pressure from looming convergence deadlines, the Boards appear to have almost entirely ignored the straightforward solutions put forward by the leasing industry for lessor accounting.
Tanguy van de Werve, Leaseurope′s Director General comments that, "we are disappointed the IASB and FASB have not yet taken on board the feedback that we and many others have provided. During the 4 month comment period to follow today′s release, we urge European policy makers and business representatives to ensure that they are fully aware of the implications of the changes to accounting for leases and rental and encourage them to make their views on the proposals known to the Boards. In particular, we call on the European Commission and its advisory bodies to ensure that a robust impact assessment is carried out and that the final standard reflects the conclusions of this exercise before it is integrated into EU legislation."