INVESTORS are losing out because firms and banks attempt to hide the true level of debts in off-balance sheet instruments, the head of the International Accounting Standards Board (IASB) claimed yesterday.
Hans Hoogervorst argued that vested interests are opposing his move to push leasing arrangements on balance sheet, as it would present a less healthy picture of firms with such agreements.
“The vast majority of lease contracts are not recorded on the balance sheet, even though they usually contain a heavy element of financing. For many companies, such as airlines and railway companies, the off balance sheet financing numbers can be quite substantial,” he told an audience at the London School of Economics.
“If this financing were in the form of a loan to purchase an asset, then it would be recorded. Call it a lease and miraculously it does not show up in your books.”
Unless the change is made analysts and investors will have to continue to guess the true extent of companies’ leverage, rather than basing their decisions on the facts about the business’ operations, he said.