Hoogervorst predicts “uphill battle” on lease accounting

by Richard Crump

More from this author

07 Nov 2012

  • Comments
Hans Hoogervorst IASB chairman

INTENSE LOBBYING could scupper plans to record leases on company balance sheets, the chairman of global standard setter the IASB has warned.

In a speech at the London School of Economics, Hans Hoogervorst (pictured) said lobbying by the leasing industry meant the IASB and US counterpart FASB are "facing an uphill battle" to bring the leverage represented by leases onto company balance sheets.

"We will need all of the help we can get, to ensure that we do not get lobbied off course. We need national accounting standard-setters, regulators such as the SEC, investors and others to stand by their beliefs and help us to bring much-needed transparency to this important area," Hoogervorst said.

Currently, the vast majority of lease contracts are not recorded on the balance sheet, even though they usually contain a heavy element of financing.

"If this financing were in the form of a loan to purchase an asset, then it would be recorded. Call it a lease and miraculously it does not show up in your books," Hoogervorst said.

"In my book, if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. So is the case with debt – leasing or otherwise.

"Companies tend to love off-balance sheet financing, as it masks the true extent of their leverage and many of those that make extensive use of leasing for this purpose are not happy."

The IASB and FASB have been working together to recognise lease liabilities since 2006. In June, the two boards agreed on a two-model approach for accounting for lease expenses on the balance sheet.

Under the two-model approach, one method will require leases to be accounted for using a straight-line expense method, while the second will allow lease contracts to be accounted for using an approach similar to that proposed in the 2010 leases exposure draft, in which lease expenses can be recognised evenly in the income statement over the course of the lease term.

Visitor comments

blog comments powered by Disqus

Add your comment

We won't publish your address

By submitting a comment you agree to abide by our Terms & Conditions

Your comment will be moderated before publication

  • Send


Financial Planner

The Ministry of Defence Surgeon General’s (SG) Finance Department, Lichfield, Staffordshire, Permanent, Full Time, £ £30,008




Get the latest financial news sent directly to your inbox

  • Best Practice
  • Business
  • Daily Newsletter
  • Essentials


Search for jobs
Click to search our database of all the latest accountancy roles

Create a profile
Click to set up your profile and let the best recruiters find you

Jobs by email
Sign up to receive regular updates with the latest roles suitable for you



Why budgeting fails: One management system is not enough

If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.


iXBRL: Taking stock. Looking forward

In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.