Fleet News

Firms may turn to outright purchase

New research suggests that proposed new international accounting rules could lead to companies switching to owning rather than leasing vehicles.

Under the proposed new rules, companies leasing vehicles will have to account for the values of these vehicles on their balance sheets.

Now research just published by the University of Winchester Business School, which was commissioned by the Finance and Leasing Association (FLA), found that companies listed on the main UK Stock Exchange could see an average increase in their reported assets and liabilities of up to £18 million per company for non-property assets, such as vehicles.

“If the proposals do go through unchanged, it may mean put some companies off leasing,” said FLA spokesman Helen Saxon.

“We continue to lobby the standards setters, and are confident that we will see more favourable proposals.”

However, time is running out: the new rules are expected to be finalised and published in June 2011 – in just seven months’ time - with compliance likely from 2012.

And as John Lewis chief executive of the BVRLA, says, the FLA’s hopes may be misplaced.

“We have recently discussed the subject of lease accounting with representatives of the big four accounting firms who are all pretty convinced that the IASB proposals will be implemented in something pretty close to their current form,” he said.

“Other research carried out across Europe has demonstrated the enormous commercial benefits of leasing and shown that, while leasing may have to adapt and be more innovative, there is no indication of a mass shift to other forms of financing.”

While the rules will only apply initially to an estimated 10,000 large companies that currently use the International Financial Reporting Standards in the UK, there is an expectation that the rules will eventually affect many more companies.

“In the beginning, these rules will apply to large companies, but we do expect the rules will be cascaded down to medium companies too,” confirmed Saxon.

“It will affect companies with fleets because of the types of lease that are usually associated with those fleets.”

These contracts are known as operating leases.

The FLA is now calling for the regulator, the International Accounting Standards Board, to simplify its proposed new rules.

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