Leasing and rental will retain their status as essential forms of vehicle finance despite the publication of a new lease accounting standard by the International Accounting Standards Board (IASB) today.
The new standard becomes mandatory from 1 January 2019, but as with any other change to accounting standards, companies will need to ensure that they produce a set of comparative accounts for 2018.
The British Vehicle Rental and Leasing Association (BVRLA) is confident that its members will be able to adapt their business processes to help customers with financial reporting as required by the IASB’s new standard (IFRS 16 Leases).
The new standard is intended to bring all leased assets onto the balance sheet, giving a more complete picture of a business’s financial commitments.
This new approach to lease accounting, called the ‘right of use’ model, differs substantially from the current standard, which does not require operating leases to be reported in company accounts. Under the new model, a lessee (leasing customer) would identify the right to use a leased asset on their balance sheet and incur a corresponding liability for future rental payments.
The final version of the standard includes some major simplifications which mean that short term hire vehicles, informal vehicle extensions and ancillary leasing services (e.g. maintenance) do not have to be reported. It also gives fleets the option to report leases on a portfolio level rather than individually.
Initially, the new standard will only apply to public sector organisations and firms that report to International Financial Reporting Standards (IFRS). Most UK firms report to the UK’s Generally Accepted Accounting Principles (GAAP) and will be unaffected until such time these converge with IFRS standard.
Bringing leased vehicles onto the balance sheet will not erode the key benefits of leasing, according to BVRLA Chief Executive Gerry Keaney.
“Vehicle leasing continues to grow in popularity and this has very little to do with any balance sheet advantages.
“Its main value comes elsewhere, sheltering companies from the risk of fluctuating vehicle values, providing them with extra flexibility and purchasing power and freeing-up precious working capital that would otherwise have been spent buying an asset.
“Our members already advise customers on how to reduce fleet costs and emissions and I am confident they can add even more value by helping them with their reporting requirements.”
Notes to editors:
The BVRLA has created a webpage with more information: http://www.bvrla.co.uk/advice/guidance/lease-accounting-standard
About the BVRLA:
The British Vehicle Rental and Leasing Association is the national trade body for companies engaged in the leasing and rental of cars and commercial vehicles. Its members provide short-term rental, contract hire and fleet management services to corporate users and consumers. They operate a combined fleet of around 4.5 million cars, vans and trucks, buying nearly half of all new vehicles sold in the UK.
Through its members and their customers, the BVRLA represents the interests of more than two million business car drivers and the millions of people who use a rental vehicle each year. As well as lobbying the government on key issues affecting the sector, the BVRLA regulates its members through a mandatory code of conduct.
For more information:
Toby Poston – Director of Communications and External Relations
tel: 01494 545700
mob: 07979 756533
Jamie Fretwell – Media & Communications Officer
tel: 01494 545710
mob: 07790 271806