Finance Leasing Manual - FLM31.20

First condition: lease treated as an operating lease

A lease may be treated as an operating lease in accounts correctly drawn up in accordance with foreign accounting standards. The test imposed by the first condition is whether a lease should have been treated as a finance lease in accounts drawn up in accordance with UK accounting standards. This is achieved indirectly by deeming the lessor to be a company incorporated in the UK for the purpose of considering what the accounting treatment should be (Paragraph 28(1)).

Companies incorporated in the UK are required by the Companies Act to draw up accounts which show a true and fair view and to identify any non-compliance with UK accounting standards. Compliance with the standards creates a strong presumption that the accounts show a true and fair view. Conversely, failure to comply creates a presumption that the accounts fail to do so.