Last week, on Aug. 27, the Securities and Exchange Commission (SEC) raised
the possibility that some
Efforts to develop
international accounting standards were started in 1973 by the International Accounting
Standards Board (IASB). Today, nearly 100 countries require or allow companies
to prepare financial statements using IAS. The
It is estimated that U.S
companies would require two to three years to make the switch to IAS, with
smaller businesses needing more time. The SEC said it would consider requiring
large
IAS Impact on Fleet Leasing in the U.S.
Fleet leasing is one facet of fleet management that will be impacted
by international accounting standards. Lease accounting is governed by
Financial Accounting Standard (FAS) 13 in the
“I think it is highly unlikely the SEC
decision will have any material impact on fleet leasing in the
George Kilroy, president & CEO of PHH Arval says the recent SEC decision could impact funding decisions at some companies. “If early adoption means adopting current IAS 17 lease accounting, it could mean many of the leases in the fleet industry that are treated as operating leases would have to be capitalized. That may impact some companies’ decision as to whether to lease or not, or to change lease structure,” said Kilroy.
Other Considerations and Implications
Many in the fleet industry expect the SEC to endorse IAS 17, but with
modifications that will result from the Lease Accounting for Lessees
Project.
There are also other implications to the adoption of
IAS 17. “We’ll have to watch this closely, given the current state of
the credit markets and, for some companies, the growing importance of
financial ratios to their ability to access funds,” said Kilroy.
According to Jim Frank, this issue is likely to be addressed by the enormity of the overall change to IAS. “When companies switch over to international accounting standards, lenders, accountants, analysts, and investors are all going to need to adjust their measurements and ratios to accommodate the new reporting. Many of them already add back the off-balance sheet items today.”
Others view the implications of the convergence between FASB and IASB as still uncertain. “The interpretation of open-end leases will likely change in some form or fashion. Whether these new interpretations will lead some fleets to choose to vary their ownership versus open-end lease versus closed-end lease is unknown,” said Rick Fletcher, strategic marketing manager for GE Capital Solutions Fleet Services. “Financial reporting treatment is only one of many factors to consider when making fleet decisions. The question will become how important operating lease treatment is to companies. In today’s sophisticated financial markets, with increased focus on underwriting standards, off- versus on-balance sheet accounting will likely be viewed similarly by capital markets. Therefore, many believe the impact of the change will be minimal, but only time will tell.”
Wholesale Change to U.S. Accounting Rules
If the international accounting standards are eventually adopted, the result will be wholesale change in U.S. accounting rules. While FASB and IASB are working to bring convergence between accounting rules, there still remain differences between the two.
Not everyone is happy with the possible convergence between FASB and IASB standards. “I do not like the idea of the U.S. losing control over accounting rules because the IASB is not as accessible as the FASB has been to the fleet leasing industry,” said Bill Bosco, president of Leasing 101 in Suffern, N.Y. “IASB has such a vast base of interested parties that it seems they listen to no one, and it seems the political processes around the world have allowed some cases where large, influential companies get special treatment.”
Let me know what you think.
[email protected]
0 Comments
See all comments