Fleet News

Accounting nightmare for lease firms

May 2000: LEASING companies across Europe will face huge compliance costs if governments accept new proposals for the accountancy treatment of leased cars.

The proposals attempt to create greater transparency to company balance sheets by simplifying which assets should appear on or off the balance sheet.

This would end the accounting distinction between finance leases and operating leases, and require lessees to feature any leased assets on their own balance sheet. Accounting authorities in the Netherlands and the UK are considering the proposals, while Portugal has already adopted them.

Only finance leased vehicles currently appear on the balance sheet of end-users in most countries, while operating leases appear on the balance sheets of leasing companies.

The issue has arisen following the publication of a discussion paper by the Accounting Standards Board of the G4+1 group (International Accounting Standards Board, USA, UK, Australia, New Zealand, and Canada).

Speaking at the European Car and Truck Rental Association's annual assembly in Italy, Norman Donkin, chairman of ECATRA's accounting standards committee, said one British leasing company has estimated that complying with the ASB's proposals would cost it £1 million (€1.66 million) in IT changes and staff training.

He also warned that the draft proposals make no exception for short-term rental cars, so in theory these could also appear temporarily on the balance sheet of customers during the hire period. In addition, the proposals would force leasing companies to reveal the interest rates they charged and their residual value forecasts to their customers.

Portugal has already adopted a new directive that introduces this type of accountancy treatment, although it is not yet being widely implemented. In the Netherlands, Wijnand de Geus, secretary of the VNA (Vereniging van Nederlandse Autoleasemaatschappijen), said similar proposals were under discussion.

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