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March 24, 2009

Proposed standard may increase reporting complexity: Leaseurope

By Nicholas Moody

Europe’s major automotive leasing association has warned a proposed new lease accounting standard could lead to increased complexity in financial reporting and procyclicality.

The International Accounting Standards Board and the US Financial Accounting Standards Board have published a joint discussion paper seeking public comments on the proposed standard.

Leaseurope, the association representing leasing and automotive rental in Europe, said businesses should be aware the proposed changes will have much wider reaching consequences than just an increase in their assets and liabilities.

The group said the European industry would not like to see a standard that was so complex it might overshadow the economic benefits of the products it provided. This was particularly important in the current economic climate where many businesses were struggling to find financing, it added.

The proposal states that lease accounting should be based on the principle that all leases give rise to liabilities for future rental payments and assets (the right to use the leased asset), which should be recognised in an entity’s statement of financial position.

This approach is aimed at ensuring leases are accounted for consistently across all sectors and industries.

But Leaseurope’s accounting committee chairman Mark Venus said this could lead to increased volatility and procyclicality in financial reporting.

“The inevitable diversity of approaches that they will adopt when making these estimates could very well lead to financial statements being less understandable and comparable than before,” he said.

Comments on the proposed standard close on 17 July. The final standard is due for release by June 2011.

Nicholas Moody

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