In 2016, both the International Accounting Standards Board (IASB) and the Financial Standards Accounting Board (FASB) issued new standards for the accounting of lease obligations. When the new standards take effect, all leases will need to be recorded on a company’s balance sheet at the net present value of the remaining lease payments as well as a corresponding liability. For public companies, implementation of the FASB standards will be for fiscal years beginning on or after December 15, 2018. For all other companies, implementation of the FASB standard will be for fiscal years beginning on or after December 15, 2019. The IFRS standards will be implemented for all companies effective January 1, 2019.

Both the IASB and the FASB stated that the intent behind these revisions was to give better transparency into the operations and obligations of organisations with leased assets. In a public statement released by the IASB, it was estimated that companies using the standard accounting principles issued by either the IASB or the FASB are estimated to have around £2.6 trillion in lease commitments.

This, of course, means a potentially significant accounting change for any organisation with leased vehicles. Now is the time to begin preparing for this change. Key to this process will be for fleet managers to work closely with both their internal and external finance and accounting groups for guidance and interpretation. Amongst the key things for your team to consider are, which standard applies to your company (IASB or FASB), the data points required for the calculations required under the applicable standard, and what information you currently possess which would help you in this process. Holman is poised to assist you in this process. Holman is developing reports which will contain all of the data elements necessary under either standard. We expect these reports to be available in early 2017 and will advise of the availability.

The good news is that leasing – both open-end and closed-end – still remains a viable financing strategy with significant benefits for any company. Consideration on how those leases are reported simply need to be taken into account. Companies with leased vehicle fleets should meet with their fleet management companies and their accounting teams to determine what, if any, changes need to be made to both current reporting and future planning in anticipation of the approaching deadlines for the new accounting standards.

If you have any questions about the coming changes or would like to speak to a fleet leasing specialist, please contact Holman.