Finance Leasing Manual - FLM4.34

Future accountancy developments on leasing

In 1996 the Australian, Canadian, New Zealand, UK and US accounting standard-setting bodies issued a discussion document (Accounting for leases: a new approach) under which the distinction between finance and operating leasing would disappear. Essentially, the treatment of finance leases would be the same but operating leases would be brought on to the balance sheet of the lessee who would have to show the value of the lease and the present value of the future rental payments. Before any changes are made the Accounting Standards Board (ASB) will be consulting with the leasing industry and others interested in leasing before issuing a paper for public consultation.

Some commentators have suggested that European Commission Directives may drive us towards Continental accountancy standards. If anything the trend is in the other direction. If European groups want to raise money in the USA (the world's largest capital market) they need to produce accounts - at least consolidated group accounts - using US standards to meet the regulatory requirements of the US Securities and Exchange Commission. UK standards are generally similar to US standards, and this is especially true of leasing. UK groups have relatively little trouble satisfying the US authorities but Continental groups currently have great difficulty because their approach to accounting is so different.