The Finance and Leasing Association (FLA) and the British Vehicle Rental and Leasing Association (BVRLA) issued a joint statement entitled:’Think again Sir David: Lease accounting is not as simple as you think.’
The discussion paper, unveiled yesterday by ASB chairman Sir David Tweedie, seeks to end the distinction between operating leases and financial leases – a move that will add billions of pounds to the balance sheets of companies which have previously been able to keep operating leases off balance sheet.
Martin Hall, Director General of the FLA, commented:’Sir David Tweedie has described the approach in the ASB paper as ‘quite simple’. The principles the paper draws on are elegant. We would expect no less of Sir David. But the approach would have complex and dramatic effects on the financing of British business.’The ASB is obliged to take account of the costs. We still await their rationale. Abstract theory, frankly, is not enough. ‘Our industry has already put far more questions to than the ASB than they yet have answers. We welcome greater transparency, but the ASB is a long way from proving that the new approach would deliver it. The FLA looks forward to further vigorous debate with the ASB, in the spirit of Sir David’s reported remarks.’
Norman Donkin, Director General of the BVRLA, said:’In relation to the contract hire of vehicles, the ASB’s proposals are misguided and based on principles which fail to reflect commercial reality.
‘ Contract hire companies take significant residual value and operating risks in the vehicles that they supply, to the substantial benefit of their customers.
‘The ASB could achieve its objectives by tightening up SSAP21 and FRS5 rather than introduced a quite unnecessary and dramatic change of accounting treatment which will be damaging to many companies’ balance sheets.’
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