A move by the Accounting Standards Board to breath life back into a 1996 discussion paper on leasing is sending shudders through the car leasing industry and fleet users. The industry is concerned that the thrust of the ASB’s efforts will be to make companies show vehicle fleet leases as on-balance sheet items. As Mike Baldry, general manager at Alphabet GB, put it: “If the ASB attacked leasing and transformed it to an on-balance sheet item, that would have a dramatic effect on the market. It will also introduce some manifest absurdities into company balance sheets.” Robin Mackonochie, external affairs manager at the British Vehicle Rental and Leasing Association (BVRLA), confirms that his members are seriously concerned about the position the ASB appears to be taking. “Patently, the BVRLA is somewhat aggrieved at the ASB’s initiative on this. It seems determined to bring the accounting of leases, which includes contract hire, to the same state of affairs that apparently pertains in New Zealand. We cannot follow the logic or the necessity of this. We had a meeting with the ASB people at the end of March. They listened closely to everything we said to them, but it remains to be seen how much impact we had,” he says. The BVRLA’s main concern is to impress upon the ASB the fact that car fleet leasing is not so much a financial instrument as a detailed service contract. Payment for car leasing comes out of revenue for a stream of rentals. Any other treatment would be absurd, he argues. “It is exactly like suggesting that a company employee who hires a car for a week or so should have that agreement raised to the status of a balance sheet item,” Mackonochie says. “The idea is a nonsense.” The ASB does not quite see matters that way. Hans Nailer, the ASB project director, stresses that it is very early days and that no decisions have been taken yet. It would be three or four years, he points out, before an accounting standard would come into effect. However, he explains that the ASB is unhappy with the current state of affairs where there is a cut-and-dried distinction between financial leases, which go on the balance sheet, and operating leases, which do not. It would prefer to see a more fine-grained approach. Nevertheless, the ASB can expect the leasing industry to lob plenty of heavy artillery its way until it changes course.
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