What impact will new accounting proposals have on your vehicle lease?
The introduction of new lease accounting proposals by the International Accounting Standards Board has raised many questions for businesses who lease vehicles. The proposals put forward by the IASB aim to bring all leased assets onto the balance sheet, offering a higher level of transparency where a business’ finances are concerned. Any company with a car lease agreement is advised to become familiar with proposed changes and their repercussions.
The ‘right of use’ model, if introduced, will mean that any assets leased by a company, including property, computers or vehicles, will need to be accounted for in order to allow investors a more detailed view of the balance sheet. Many influential and prominent figures in the car leasing industry were consulted before these proposals were put forward, and effort has been made to make the rules straightforward and simple for businesses to understand and put into practice should the regulations be enforced. However, there are still concerns from the industry about increased complexity brought about by these changes.
According to Gerry Keaney, the chief executive of the BVRLA (British Vehicle Rental and Leasing Association), the proposed changes, which as yet have no implementation date, will not change or remove the key benefits of leasing a vehicle for a business. Bringing the transactions onto balance sheets will not affect the value for money that leasing a vehicle offers, but there are some simple guidelines, exemptions and other rules which may affect some businesses differently than others.
The proposed regulations exclude all maintenance and servicing fees; only the initial finance of the vehicle lease needs to be recorded. This is only an issue for companies who combine finance elements and maintenance fees in the monthly payments for their lease; in this case, businesses would need to report full rental values on their records.
Any short term hire vehicles (less than 12 months) will use a basic accounting model which keeps reporting to a minimum. Contingent rentals are exempt from the proposals as they stand, and businesses will not need to report any end of rental or mileage charges that are recorded.
Businesses with options to extend their vehicle leases will be required to work out the value of the asset for the period of the required extension. The majority of companies who lease vehicles opt for fixed-term leases, so this specific requirement is unlikely to affect a large number of vehicle lessees.
There is no current fixed date for the proposals to come into play, but it is thought that a final standard will be published towards the end of the year, with the regulations being enforced within two or three years.