New Accounting Standards Coming Soon; Benefits of Leasing will Remain Unchanged
December 10, 2015
BELLEVUE, Wash., Dec 10, 2015 - For companies that lease vehicles – finance and full-service – new accounting standards recently unveiled by the Financial Accounting Standards Board (FASB) will impact their financial reporting, but result in little change to their operations.
“The good news is that leasing will continue to provide numerous advantages to fleets,” said Brent Stevens, PacLease’s Corporate Services Manager. “The advantages of full-service leasing, such as outsourcing vehicle ownership (to alleviate investing capital in non-core business assets) and related repair and maintenance, remain unchanged,” he said. “What’s more, leasing will continue to transfer the vehicle’s residual risk to the lessor, improve and provide predictable cash flow, and give tax benefits – all while providing an additional source of low cost capital.”
According to Stevens, the objective of the new FASB lease accounting standard is to make financial reports easier for users to understand. “Currently, financial institutions and other users of a company’s financial reports have to closely review the footnotes to the financial reports to understand the impact and scope of assets and associated liabilities related to off-balance sheet operating leases,” Stevens said. “Most full-service leases are accounted for as operating leases (off balance sheet – no asset or liability recorded), and the lease payment is simply recorded as an expense on the income statement. But in doing so, someone reviewing the financials of the company can spend a great deal of time trying to estimate the value of assets leased by the company and financial obligations related to the leases.”
And Stevens said that’s what FASB is trying to change and simplify for users of financial reports. “The new FASB lease accounting standard will require all leases, including operating leases, to be reported as assets and liabilities on the balance sheet– it clarifies accounting and gives investors and financial institutions a more accurate picture of the long-term financial obligations of the company leasing trucks,” he said.
According to Stevens, the new standard retains the straight-line expense recognition for operating leases on the income statement. “And most importantly, although the operating lease liability will be recorded on the balance sheet as a liability, it will not be classified as debt,” he said. “Those leasing trucks will need to allocate the rent payment between the portion related to the lease of the vehicle and the bundled services in order to determine the asset and liability amounts to record on the balance sheet. At PacLease, we will be able to help our customers navigate the new standards.”
The new standards, to be published in early 2016, are not expected to go into affect for public companies until 2019. Private companies, whose lenders require audited GAAP financial reports, will have until fiscal year 2020 to incorporate these standards.
In Canada, new standards will also come into play, but they are not the same as in the United States, said Stevens. “For years, the FASB and International Accounting Standards Board worked together to try and create a universal standard, but that didn’t end up happening,” he said. “In Canada, lessees will follow International Financial Reporting Standards, which for public companies will result in a single lease model with all leases accounted for as finance leases. However, non-public companies will be able to continue to account for leases under the current IAS 17 lease accounting standard which treats operating leases as off balance sheet.”
About PacLease and PACCAR
PACCAR Leasing Company (PacLease) is one of the fastest-growing commercial truck leasing companies in the transportation industry. PacLease has independent and company-owned full-service leasing locations throughout the United States, Canada, Mexico, Europe and Australia. PacLease provides customized full-service lease, rental and contract maintenance programs designed to meet the specific needs of customers. A combination of reliable, custom-built trucks and complete service offerings allows customers to maximize the value of their transportation resources.
PACCAR Leasing is a part of the financial services group of PACCAR Inc, a global technology leader in the design, manufacture and customer support of high-quality light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt and DAF nameplates. PACCAR shares are traded on the Nasdaq Stock Market, symbol PCAR, and its homepage can be found at www.paccar.com.