One of the 'big four' accountancy firms, KPMG, has called for the
shipping industry to push back against regulatory changes that threaten
to overhaul the reporting of revenue from charters across the shipping
and offshore industries.
"I think shipping is firmly in the crosshairs of the accounting standard-setters on this and they believe that time charters are leases and therefore should come on balance sheets," John Luke, global head of shipping at tax
and advisory firm KPMG said at the London International Shipping Week conference.
The accounting changes, currently being reviewed at the International Financial Reporting Standards (IFRS) and International Accounting Standards Board (IASB), are aimed at clarifying accounting practices for leases across all business sectors.
The current draft of the lease standard defines a lease as "a contract that conveys the right to use an asset for a period of time in exchange for consideration," and would necessitate the identification of particular lease components within a contract, where currently the cost of supplying a vessel is often bundled together with crewing and management or other services within a charter.
In a letter responding to the proposals earlier this year, the UK Chamber of Shipping highlighted a number of particular issues for shipping: the potential damage to companies' balance sheets as charter costs become listed as liabilities, the distortion of shipping companies' profits in the early years of a charter as amortisation is required, and the difficulty in administering the rules, as the cost of supplying a ship and the supply of services such as crew and ship management, would need to be defined within the current single charter payment.
Of particular concern in current shipping markets, the impact on the appearance of a company's capital situation and gearing could well lead to breaches of financial covenants.
"I think the sector should try and avoid that and we can do that by pushing back on the standard-setters, I think there's a lot of fundamental reasons... as to why this standard is wrong, but equally for shipping, shipping has managed with time charters successfully form the year dot, so I'm not sure what need this standard is trying to address in shipping," added Luke.
Source: Seatrade Global
"I think shipping is firmly in the crosshairs of the accounting standard-setters on this and they believe that time charters are leases and therefore should come on balance sheets," John Luke, global head of shipping at tax
and advisory firm KPMG said at the London International Shipping Week conference.
The accounting changes, currently being reviewed at the International Financial Reporting Standards (IFRS) and International Accounting Standards Board (IASB), are aimed at clarifying accounting practices for leases across all business sectors.
The current draft of the lease standard defines a lease as "a contract that conveys the right to use an asset for a period of time in exchange for consideration," and would necessitate the identification of particular lease components within a contract, where currently the cost of supplying a vessel is often bundled together with crewing and management or other services within a charter.
In a letter responding to the proposals earlier this year, the UK Chamber of Shipping highlighted a number of particular issues for shipping: the potential damage to companies' balance sheets as charter costs become listed as liabilities, the distortion of shipping companies' profits in the early years of a charter as amortisation is required, and the difficulty in administering the rules, as the cost of supplying a ship and the supply of services such as crew and ship management, would need to be defined within the current single charter payment.
Of particular concern in current shipping markets, the impact on the appearance of a company's capital situation and gearing could well lead to breaches of financial covenants.
"I think the sector should try and avoid that and we can do that by pushing back on the standard-setters, I think there's a lot of fundamental reasons... as to why this standard is wrong, but equally for shipping, shipping has managed with time charters successfully form the year dot, so I'm not sure what need this standard is trying to address in shipping," added Luke.
Source: Seatrade Global
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