Fleet News

Lease accounting changes ‘trouble’ fleets, research shows

Fleet decision-makers are 'deeply concerned' about impending changes to the accounting treatment of leased company vehicles, which will see them appear on company balance sheets for the first time, according to Sewells Research & Insight.

From January 1, 2019, the International Accounting Standards Board will require companies to identify leased assets on their balance sheets, and incur a liability for future rental payments.

The off-balance sheet treatment of leased vehicles has long been promoted as one of the principle advantages of contract hire. Keeping assets and liabilities off a balance sheet can help companies to maintain a low debt-to-equity ratio and enhance their ability to access finance.

In a Sewells Research & Insight survey of fleet decision-makers, 37% said the off-balance sheet treatment of company cars and vans was a ‘very important’ factor in their decision to use this type of vehicle finance, and a further 44% described it as ‘important’. Only 5% of fleets said the balance sheet treatment was not important.

More than half of fleets deemed the balance sheet treatment of leasing to be at least as important as four other key advantages of contract hire; namely, no residual value risk, ease of budgeting, freeing up capital, and the ability to reclaim VAT.

These findings, published in Sewells Fleet Market Report 2016, should ring alarm bells at leasing companies, Sewells believes, as more companies could switch to a cash-for-car alternative.

However, the British Vehicle Rental and Leasing Association (BVRLA) has dismissed claims about the impact of lease accounting, saying it will be 'business as usual'.

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Comments

  • Alastair lendrick - 10/08/2016 11:06

    The results of this survey are very much in line with our findings. The impact of the balance sheet reporting is likely to have significant implications for corporates given their financial standing which will impact in lending etc. When this was first proposed we highlighted this issue across the industry but was told it would have little impact. Let us a hope that corporates learn to live with these changes and manage to organise their finances accoedingly

  • Kenneth Davis - 10/08/2016 11:49

    This has been on the cards for ages?

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