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October 26, 2009

Leasing consultation raises complexity fears

Representatives from the leasing industry have voiced concern that a new lease accounting standard being drafted by the International Accounting Standards Board (IASB) could add cost and complexity to their operations.

The comments coincide with the deadline for comments on the IASB’s lease accounting discussion paper.

The board embarked on the project to update lease accounting to address a perception that the current standard does not meet the needs of users, is complex and is conceptually flawed.

However, at a lease accounting round-table hosted by The Accountant, International Accounting Bulletin and Motor Finance this month, Angel Trains finance director George Lynn said the new standard the IASB has proposed will “undoubtedly” cause some people to choose not to enter into operating leases.

“I think it will be the complexity of analysis and valuations, together with the additional costs to carry out the associated new work that will put lessees off,” he said.

Also speaking at the roundtable, UK Accounting Standards Board chairman Ian Mackintosh said the board broadly supports the proposals, but he acknowledged the leasing industry’s concerns.

“One thing that comes across to me that has been emphasised today is the current emphasis on worry of complexity of cost. Wherever there is a way to avoid complexity and cost it should go that way,” he said.

“If you have a thousand cars [leased] each one will be a bit different but you could look at them as a group that could have quite an important implication.

“The other thing is the materiality, if that could be sussed out a bit more and made clearer it could get rid of a lot of small problems.”

Complexity concerns have been particularly prevalent from industry groups representing SMEs. The UK-based Finance & Leasing Association and the European Federation of Accountants and Auditors for SMEs both warned about rules that would be overkill for small business.

A supplement featuring a full write-up on the lease accounting roundtable will accompany next month’s issue of The Accountant.

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