New Lease Accounting Standard Too Complex

Sarah Woodman, Global events journalist
August 19, 2010 /

The IASB’s (International Accounting Standards Board) proposals on lease accounting have come under fire as the industry claims that the new standards have increased the liabilities on corporate balance sheets and that it will require substantial investment to implement.

The IASB had claimed that the new standards have been designed as such so as to offer a more transparent and simpler approach.

KPMG has said that IASB’S proposals are complex and that the multiple approaches and rules will probably remain an issue with companies. It added that companies may even face “a costly transition”.

Wolfgang Laubach, who is the global IFRS leasing standards leader and partner of KPMG, says that the new standards could significantly affect businesses that have significant operating leases of large and expensive assets such as aircraft.

Laubach also pointed out that others who would be affected by the new standards were those who had leased assets in construction, mining and transport sectors. Also, businesses which had leased buildings including retail premises and head offices will also get affected.

Laubach further said that any business “with operating leases would have to alter significantly how it accounts for these in both the statement of financial position and statement of comprehensive income”.

The British Vehicle Rental and Leasing Association (BVRLA) has said that IASB has ignored requests from businesses who asked it to make the rules as simple as possible, particularly in regards to its short-term, low-value leases.

Mark Beddy, who is the UK audit partner in the Deloitte real estate practice, said that property is bound to become a much more strategic issue. When companies are forced to look at property as having a balance sheet liability, they will be more forthcoming on ways of managing it and reducing it.

 

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