Further to my missive of last June (Possible Changes to Lease Accounting), the International Accounting Standards Board (IASB) have been moving forwards relatively quickly, and it looks like the bulk of the proposals at that stage – which were issued in draft last August and could be finalised as early as June 2011 – will be coming into force all too soon.
A Deloitte’s survey (albeit US-based, but likely to be equally applicable locally) suggests that, despite some quite significant changes in the way companies will account for many leasing transactions, only a small proportion of them are ready for the proposed changes.
As usual for this sort of change, major alterations to data collection, back-office systems and statutory reporting are likely to be required. Over 80% of respondents expect a significant burden to be placed on financial reporting for lessors as well as lessees; perhaps more importantly, over 40% believe it may affect their ability to obtain financing. Practically, the requirements may actually affect lease terms, and many companies may have to invest heavily in new or improved systems. Obviously, the larger a company’s lease portfolio, the larger the potential impact.
The proposed standards, as previously stated, require all leases to be capitalised on the company’s balance sheet – operating leases may be no more!
So, perhaps there is an impending lesson for UK organisations (both private and public sector) with significant numbers of leases (whether lessor or lessee) – start planning for the changes well in advance, as it’s unlikely to be an easy ride…I would have to ask – do you need some help with that?