The proposed changes to accounting standards for lessees leave
too many unanswered questions and could boost uptake of
cash-for-car schemes, says Alastair Kendrick of
Mazars.
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Many seem to have not noticed the
recent important announcements by the International Accounting
Standards Board (IASB) over the proposed changes to the accounting
treatment to company cars. It is proposed that these changes will
be introduced in 2012.
We have seen discussion over a
considerable number of years suggesting the need to introduce a new
international accounting standard and many have therefore not taken
seriously the suggestion that there will be changes made in what is
such a short period of time.
However, given pressure from the US,
it is likely that we will now see changes implemented at an early
date.
It is important to note that
approximately 40 percent of all new passenger cars in Europe are
purchased and leased through finance or operating leasing
agreements. This accounts for 17.5 million vehicles. The proposed
changes therefore will impact on a significant number of
transactions.
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By GlobalDataThe drive for change comes from the
IASB and Financial Accounting Standards Board, which want full and
transparent information on the balance sheet of those who lease
vehicles. In the UK this will mean those employers who lease
vehicles on contract hire will be required to show those vehicles
on their balance sheets.
There are some significant questions
being raised by the proposed changes, with much of the detail
released at present explaining the accounting position for lessees
whilst not addressing the position for lessors. In fact the
documentation possibly raises more questions than answers and it is
worrying, if the IASB is serious about these changes being
introduced in 2012, that we do not know when the many unanswered
questions will be answered.
There are also significant concerns
over what these changes will mean for the industry, at a time when
it has been seriously hit by the recession and the added costs
arising from the capital allowance changes. It is likely that the
proposed IASB changes will do nothing to generate sales, and in
fact the opposite is likely to be the position.
I am aware that many international
concerns are loathe to have cars on their balance sheets, which
also creates accounting difficulties for certain industries like
the financial sector.
I can imagine that if these changes
are to be introduced that this will push a significant number of
companies out of company cars, and will raise the appetite for cash
alternatives or employee car ownership schemes.
It is worrying that after years of
talking we are now having thrust upon us such a significant change
to the accounting treatment, and, given the time restraints, many
employers will not have the opportunity to really consider its
impact.
It would be useful for the IASB to
really address the many questions which remain over how the revised
accounting treatment will work, and to consider whether those
changes can really be introduced by 2012. It must be sensible given
the complexity of these proposals to defer the date of change and
to undertake full consultation.
The author is a director in
employment tax services, Mazars
