BusinessCorporate FinanceBanks face costly IAS17 snub

Banks face costly IAS17 snub

UK banks will lose billions if IASB leaves controversial leasing standard unchanged.

Sources close to the discussions told Accountancy Age that IFRIC, the International Accounting Standards Board’s interpretations committee, will reject calls from the leasing industry to reinterpret IAS17 at a high-level meeting to be held in London later today.

The Finance and Leasing Association, which represents £89.7bn of annual leasing business, had called on the reporting committee to examine the problem. The UK’s major banks, which deal heavily in operating leases, are most likely to be hit hardest, said FLA consultant Craig Pickering. He claimed that the entire operating leases market, which accounts for at least £6bn a year, is at risk from lease accounting standard IAS17.

Operating leases account for a large proportion of many banks’ income. Last year Abbey (pictured) made £325m from operating lease assets worth £2.53bn, representing 13% of its total operating income of £2.43bn.

The standard’s treatment of depreciation will mean that many operating-lease arrangements will now show a loss over their first few years.

‘If you are writing business that shows a loss at the start, it is not attractive,’ said a key figure involved. ‘Why would you write something that would damage your profit and loss account?’

He said the way the IASB treats tax for finance leases – leases used to finance the purchase of an asset – could have a similar effect in that market. The FLA has lobbied for IFRIC to provide some interpretation clauses to avoid these situations, but it now looks increasingly unlikely that their case will be persuasive.

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