13 Jan 16

Leaseurope promises to scrutinise new Lease Accounting Standard

As the International Accounting Standard Board (IASB) prepares to publish its new Lease Accounting Standard (IFRS 16) on Thursday, Leaseurope promises to carefully examine the proposal's contents, to make sure the new rules do not harm the leasing industry. 

At the end of 2015, the Financial Accounting Standards Board (FASB), that focuses on accounting standards in the U.S., already voted to proceed with a new accounting standard that would require companies and organisations to include all lease obligations on their balance sheets. 

This FASB decision came after pressure from the International Accounting Standards Board (IASB), the independent body that focuses on global accounting standard, which expressed concerns about a lack of transparency on financial statements.

The IASB has been working on a new lease accounting standard since 2006. Ever since, Leaseurope has strived to ensure the IASB kept the best interests of Europe's leasing and automotive rental industries at heart.

However, the IASB's last public consultation on the new standards dates back to 2013. The final text of IFRS 16 is expected to be quite different from that draft. 
On the positive side, Leaseurope says the IASB seems to have taken on board its request to simplify certain rules, ensuring that the new standard does not interfere with the ability of European businesses to invest using leasing. 
However, it is still unclear whether the IASB has found a better way to distinguish between leases and services. That distinction is becoming more difficult to make, as European businesses are increasingly focused on the benefits they obtain from certain assets (e.g. vehicles), and less so on those assets themselves. 
Leaseurope maintains that a clear, meaningful distinction between leases and services in the Standard will be essential to its success. 
This is one reason why Leaseurope will scrutinise IFRS 16. Leaseurope will also review the IASB's cost/benefit analysis to ensure it properly reflects the extra costs for businesses that use leasing, and does not overstate the benefits to users of accounts including investors. 
Whatever Leaseurope has to say on IFRS 16 will be of interest to the public consultation on the new Standard that is expected to be issued by the European Financial Reporting Advisory Group (EFRAG). It is EFRAG's job to advise the European Commission whether the new Standard is in the public interest, and whether it should be approved for use. 
Said Enrico Duranti, Chair of Leaseurope (pictured): “Changing the accounting rules should have no impact on the economic benefits of leasing in Europe. However, it's been three years since businesses have had a chance to review the draft, and it has changed a great deal. Leaseurope will be reviewing the new Standard and providing feedback to EFRAG. But it's important that European companies that use leasing also alert EFRAG and the European Commission if they see any problems”.
Authored by: Frank Jacobs