He said: “It could significantly change the make-up of the balance sheet of large organisations that have significant operating lease arrangements in place and affect the gearing ratios. This will fall under the scrutiny of market analysts and investors.”

No major surprises

However, Gerry Keaney, the BVRLA’s chief executive, played down the potential impact. He said: “Leases are not going to suddenly start appearing from nowhere.

“There is already lease information in the ‘notes to accounts’, so putting more details about any leases on to the balance sheet should not create any major surprises.”

Company car provision

But Kendrick remains convinced that the changes will impact the company car market. He said: “Large corporates like to have one common employment policy across the globe and in some countries, such as the UK, that policy may not be adhered to for ‘local reasons’.

“To date, because leased company cars have been off balance sheet, the issue has been invisible.”

However, the new accounting standard has the potential to undermine HR policies. “We are currently involved in projects with two US companies which are exploring whether they will continue to provide company cars because of the impact on their gearing,” said Kendrick.

“For international companies it is a major issue. If they operate a large UK fleet and have company cars in other countries they must all appear on the balance sheet and it will affect their gearing. It is not just about accounting treatment; it will have a bottom line impact on the company.”

Lease or outright purchase

Historically, businesses have opted for contract hire because it is off-balance sheet although there are now a number of reasons, including cashflow benefits. In the future, Kendrick believes there will be discussions around the most appropriate funding mechanism.

He said: “Some major companies are cash rich at the moment and may be tempted into move away from vehicle leasing and into ownership. They will no longer be worried about on/off balance sheet issues, but will analyse the most appropriate funding method.”

Short-term leases

Harvey Perkins, tax partner at KPMG, believes that businesses may look at alternatives such as employee car ownership schemes, which he claimed remained in demand, and sub-12 month car leasing.

He said: “The issue will be making sub-12 month leases commercially attractive.”

But short-term leases could expose lessors to greater risk and potentially flood the used car market, which in turn would affect residual values.

“Market forces would therefore suggest that lessors would need to price differently which could make short-term leases an unattractive option,” said Stewart Cumberpatch, audit director in the Birmingham office of Deloitte. “This may already be the case as we see relatively few 12-month leases.”

There is also the increased administrative burden on the lessor in addition to a shorter secured income stream which would affect margins and also need to be priced into short-term lease contracts.

As a result, Andrew Hogsden, senior manager, strategic fleet consultancy at Lex Autolease, said: “We would expect that cost will remain a key component in our customers’ vehicle strategies and it is likely that in most instances traditional vehicle retention strategies will prevail.”

Existing leases

Finally, while the exact start date for the new accounting standard has still to be announced, so has clarification of the treatment of existing leases at that time. It is possible that companies may have to reflect the start date of each lease on balance sheets and restate comparative figures.

Keaney said: “We will be calling for the authorities to allow companies three to five years to implement these changes and plenty of time to prepare comparative accounts.

“Once implemented, these proposals will bring existing leases into scope. However, lessees can choose to either retrospectively apply the new standard in full or choose to only reflect the remaining term of the lease payments under the new standard.”