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>WHY SHOULD WE ACCEPT POORLY THOUGHT OUT PROPOSALS THAT COULD DAMAGE OUR PERFECTLY LEGITIMATE INDUSTRY?


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starting at minute 20. Sir David said it had been one of their best board meetings so far, and as regards Leases the board had looked at the issues, understood the problems and made decisions that would deal with many of those issues. What did the board come up with? To be fair, a number of concessions (or if put more delicately, recognition of problems) came out of the meeting, not least the birth of a new kind of lease. In addition to finance leases there is now recognition of something called Other-than-finance leases (“OTF”), with differing profit and loss recognition, and possibly presentation. Of the comment letters, letter 501, from Transcanada Corp, a North American energy infrastructure operator, was used to illustrate the point, albeit one made in many of the comment letters. OTF leases are a recognition that in some leases, financing of the asset is not the overriding feature of the transaction, rather some other consideration like avoiding asset risk, or flexibility. In a way we have returned to a world of judging and deeming a transaction as financing in nature, or not, but it’s back to familiar territory, at least.


OTFs opened the door to being sensible again about profit and loss recognition for lessees, reverting to straight-line and avoiding the penalty that the front-ending of the ED had threatened. Services contracts came up again, and this time the talk was that where the asset was not the major part of the service provision, the old accounting approach could be used (though hard to see what these cases might be).


There was even progress on contingent rentals, previously made subject to predicting and estimating the likely impact, but now narrowed down to “reasonably certain.” It should be said by way of warning, that some of these concessions are subject to further outreach discussions, and not set in stone yet. A lot of time and money has been spent fighting the IASB’s lease accounting proposals. Did we need to fight? We could have


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taken what they said verbatim, and just spent the money on the systems, the consultants and the compliance (which we’ll still have to do). But there is a major principle at stake here, why should we, we who are experts in the art and science of leasing, swallow a series of inconsistent proposals that we worry could damage our perfectly legitimate and long-established industry? What about our customers, the lessees, is it possible they might take one look at our lease offers and decide they are too complicated to account for? Well, the SME part of our customer base probably wouldn’t (and that’s almost half) because they account using local GAAP, and will do so for a while yet. But the lesson learnt from the Leases project is that all accounting developments must be more closely watched, and intervention made much earlier. The UK’s ASB has just announced the public discussion phase of Financial Reporting for Small and Medium sized Entities (“FRSME”). The leasing industry voiced many pleas to protect SMEs from onerous accounting requirements in the recent battles, so we need to get into the FRSME discussions early, this time.


UK car fleet lessors feel that SME or not, off-balance sheet is no longer the “big decision” for fleets that it was in times gone by, when operating leasing and off-balance sheet treatment was the make or break factor. On the other hand, some mainland European fleet lessors say that the UK customer base is atypical of the rest of Europe in this matter. Clearly there will be more to come.


Up to now, reasoned argument has been the leasing industry’s only weapon, and it is a laborious one to apply. Theoretically there is still political lobbying left, the dark art that leasing associations always hint at. Matters as weighty as these require lobbying at the EU and US level. The EU and the US pay most of the bills for the IASB, and the EU is known to be unhappy with the IASB. Michel Barnier, the EU’s Competition Commissioner has fired warning shots in the IASB’s direction about the damage done to the banking industry. At the same time, Hans Hoogervorst takes over the chair at the IASB, and he’s not an accountant but a politician.


The problem here is that leasing may not be high profile


enough for the politicians to champion. Those of us who are owned by institutions may already know what it’s like to feel unimportant, and how difficult it can be to get our parents to understand what we do and how we do it, so we should not be too surprised that academic accountants struggle, and the outside world is unmoved. To be fair, some of us used to exploit this ignorance and anonymity, and we gained a reputation for taking laws, rules and accounting standards and turning them to our advantage, but those days, like IAS17 and SSAP21, look gone forever. ■


www.leasingworld.co.uk ■ March 2011


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