How International Accounting Standard 17
May Impact the Open-End TRAC Lease
The Effect on Fleet Management in the U.S.
The adoption of international accounting standards will impact the U.S. fleet management business — some companies sooner than others. The U.S. companies first affected will be those whose parent companies are headquartered in European Union countries and listed on a European stock exchange. These companies will have to produce consolidated accounts according to international accounting standards effective Jan. 1, 2005. In addition, Australia is requiring Australian companies to adopt the international accounting standards by Jan. 1, 2005.
One U.S. fleet management company that will be affected in terms of its financial reporting is LeasePlan USA, whose ultimate parent company is ABN AMRO Bank, headquartered in Almere, The Netherlands. ABN AMRO is adopting international accounting standards in lieu of Dutch accounting principles.
Fleet leasing is one aspect of fleet management that will be impacted by international accounting standards. “Lease accounting, which is International Accounting Standard 17, is germane and analogous to FASB 13,” said Don Schaffer, senior vice president and chief financial officer for LeasePlan USA. FASB (Financial Accounting Standards Board) is the U.S. counterpart to the IASB, and FASB 13 is the accounting standard that governs fleet leasing in the U.S. “International Accounting Standard 17 determines whether a lease is accounted for off- or on-balance sheet. Most lessees prefer to have a lease treated off-balance sheet, which is the case with most operating leases in the U.S.,” said Schaffer. “However, under international accounting standards, this may be more difficult to comply with.”
As a result, IAS 17 may make closed-end leases more viable than open-end leases for some companies. “A closed-end lease is more easily treated as an operating lease under international accounting standards than an open-end lease. This may act as a catalyst for U.S. affiliates of foreign-owned companies to rethink the applicability of a closed-end lease for funding their fleets,” said Schaffer.
Convergence of Standards
Companies that are U.S. subsidiaries of multinational companies headquartered in Europe are already in the process of migrating to the international accounting standards. “In order to adopt the standards by Jan. 1, 2005, they need to also report comparative information from 2004. In our case, LeasePlan is now reporting Dutch, as well as international accounting standards, for 2004,” said Schaffer.
Schaffer believes the U.S. will ultimately adopt international accounting standards, in some fashion. “It is not that the international accounting standards are coming; they are here. I believe there will be a convergence in the U.S., perhaps in 2006, with respect to lease accounting,” said Schaffer. “The FASB is already working on examining the various accounting standards that could be affected. There will be a due process, and we are at the beginning of that cycle.”
According to some Australian business publications, the Australian Accounting Standards Board plans to “Australianize” some of the IASB international standards. A key point of contention is the treatment of identifiable intangibles, such as brands, patents, and trademarks, which would have a major impact on Australian (and U.S.) companies. Current IASB standards do not allow identifiable intangible assets to be posted to a balance sheet. The point in bringing this up is that just as the Australians seek to “Australianize” some IASB standards, so too should FASB consider “Americanizing” other standards in order to preserve the funding options currently available to fleets. The best place to start is with IASB Standard 17.
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