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Contractor accountants concerned about leasing changes

Contractor accountants concerned about leasing changes

A new proposal to change the way leases are accounted for on company’s balance sheets could have serious consequences for UK enterprises and contractors.

The US Financial Accounting Standards Board and the IASB have published the joint proposal which would mean leased assets such as equipment, property and vehicles will have to be listed on firms’ accounts as liable assets.

The leasing industry is huge. The top 50 FTSE-100 companies currently have operating lease commitments of around £94bn. A lot of leases are not accounted for on balance sheets but the ISAB wants to see statements granting the right to use the asset and a liability to pay rental charges.

Banks hold thousands of properties on lease and increased liabilities spell bad news because too many liabilities on a bank’s balance sheet restrict its ability to lend. It is believed that the five big UK listed banks currently have total lease commitments of around £18bn.

Vince Cable, the Business Secretary, has already unveiled a consultation aimed at improving the flow of finance to businesses and he is not likely to welcome any proposal that could stifle bank lending further.

The lease issue is feeding into a broader debate about setting accounting standards. The FASB and IASB have tried to merge their accounting codes, but disagreements arose other the changes to complex lessor accounting. In turn, this disagreement has caused opposition to the FSAB-IASB relationship, saying it is causing increased complexity when it comes to financial reporting.

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Image: drought by IRRI Images

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