Credit rating firm Fitch Ratings has predicted the proposed lease accounting changes will induce lessees to restructure the leases they sign up to.
The proposed standard, as published in the second exposure draft issued by the two standard-setters, the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), requires leases of more than 12 months to be accounted on-balance sheet.
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Fitch said it believes this will give "a better indication of the economic substance of leases" but may lead companies to restructure leases to circumvent the proposed rules. Fitch suggests companies might switch to short-term leases of less than 12 months or replace leases with "service contracts".
The original exposure draft was heavily criticised by the leasing industry in more than 800 comment letters to the two boards and the second draft has also met with criticism.
Writing for Leasing Life, Jacqueline Mills, director of asset finance at Leaseurope, criticised the two boards’ decision to discriminate between leases and other types of contractual service contracts.
Fitch has published a report, New Global Proposals to Reshape Lease Accounting, outlining how it will approach the proposed changes in its analysis.
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