Serves the Commercial Small Fleet Market of 10 – 50 Vehicles

Lease Accounting Faces Overhaul

July 18, 2006

A formal overhaul of rules on leases, slated to begin this week, could force companies to recognize billions of dollars in liabilities currently kept off their books, according to The Wall Street Journal.Prompted by a Securities and Exchange Commission call last year for new accounting standards after the collapse of Enron Corp., the move to create new rules is a joint effort by the Financial Accounting Standards Board (FASB) in the U.S. and the International Accounting Standards Board in London.With equipment leasing comprising a more than $200 billion-a-year industry in the U.S., businesses are expected to strongly oppose new rules, The Wall Street Journal reports.Current rules test whether a company effectively takes ownership of the property or equipment being leased. But the rules also let companies structure transactions so that they aren’t considered to be taking ownership, avoiding having to record an asset and corresponding liability on their books. Instead, the information is included only in financial statement footnotes.Companies leasing equipment with relatively low values for short time periods will be hit with burdensome, costly accounting rules, said Bill Bosco, head of consulting group Leasing 101 and a member of the Equipment Leasing Association’s accounting committee. He says it would make more sense for FASB to compel companies to book big-ticket, multiyear leased items while allowing them to simply increase disclosure on other leases in the notes to financial statements.
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