Changes to lease accounting would hit SMEs

05/02/2010

Leaseurope, the European leasing industry’s representative body, has today called for businesses and policy makers across Europe to review the latest plans of the International Accounting Standards Board (“IASB”) that will lead to a drastic change in existing lease accounting requirements.

Mark Venus of BNP Paribas (pictured), Chairman of Leaseurope’s Accounting Committee warns that, “European businesses will have to cope with what is turning out to be an extremely complicated approach to lease accounting. Leaseurope, as well as other stakeholders, have repeatedly raised this issue with the IASB yet there is still no visible sign of improvement. In addition to this, if the lessor accounting proposals have the effect of limiting the availability of leasing, as Leaseurope expects they may, smaller firms in particular could have a much harder time financing their investments. These are firms with limited sources of external funding to begin with and, without the benefit of the collateral that leasing naturally incorporates, their borrowing may become more costly and difficult to obtain.”

Standard setters’ work on lease accounting has so far been focused on developing new requirements for lessees. These are extremely complex, and will affect almost all European businesses given that there are very few firms in Europe who do not lease or rent equipment or property, at some point.

Recently, the IASB has announced that they will also consider accounting from the perspective of lessors, the companies who provide leasing and rental products to businesses. Although Leaseurope agrees that lessee and lessor accounting should be dealt with together, there is growing concern with the direction the proposals for lessor accounting are taking. If they go ahead in their current form, many businesses may see their overall cost of borrowing rise. Leaseurope has made its concerns known to the IASB in a recent letter, available on the IASB website.

Tanguy van de Werve, Leaseurope’s Director General, adds that, “Lease accounting is often seen as a technical issue, and consequently has not been high on the agenda of many. Business representatives and policy makers should ensure that they are fully aware of the implications of the proposals and must make their views heard. The European business community is still struggling with a difficult economic environment and limited availability of funds. It cannot afford to miss out on a chance to shape these proposals before they are integrated into a standard.”

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