The new standard becomes mandatory from 1 January 2019 and is intended to bring all leased assets onto the balance sheet, giving a more complete picture of a business’s financial commitments. Initially, the new standard will only apply to public sector organisations and firms that report to International Financial Reporting Standards (IFRS).

The launch of a new standard has been worked on by the IASB since 2006, prompted by concerns over ‘structuring opportunities’ under the current standard whereby businesses using operating hire didn’t need to disclose assets on the balance sheet, only in the notes to the financial standard.

The final standard differs from the draft issued in 2013 and includes some major simplifications which mean that short term hire vehicles, informal vehicle extensions and ancillary leasing services (e.g. maintenance) do not have to be reported. It also gives fleets the option to report leases on a portfolio level rather than individually.

Hans Hoogervorst, IASB chairman, commented: “The new standard will provide much-needed transparency on companies’ lease assets and liabilities, meaning that off balance sheet lease financing is no longer lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy.”

Leaseurope said it would review the new standard in detail to see if the IASB has delivered rules that will work in practice for European businesses. It will also review the IASB’s cost/benefit analysis to ensure it properly reflects the extra costs for businesses that invest using leasing and does not overstate the benefits to users of accounts including investors.

Enrico Duranti, chair of Leaseurope, said: “Leasing delivers very significant real economic benefits to millions of European businesses and changing the accounting treatment should have no impact on this. However, it has been three years since businesses have had a chance to review the new rules and they have changed a great deal in that time. Leaseurope will be reviewing the new standard and the cost/benefit analysis in detail and providing our feedback to EFRAG, but it’s important that European companies that lease property, equipment or vehicles also alert EFRAG and the European Commission if they see any problems.”

In the UK, the British Vehicle Rental and Leasing Association (BVRLA) said that bringing leased vehicles onto the balance sheet would not erode the key benefits of leasing.

Chief executive Gerry Keaney commented: “Vehicle leasing continues to grow in popularity and this has very little to do with any balance sheet advantages.

“Its main value comes elsewhere, sheltering companies from the risk of fluctuating vehicle values, providing them with extra flexibility and purchasing power and freeing-up precious working capital that would otherwise have been spent buying an asset.”