Is the Queen off balance sheet?

14/08/2014

Her Majesty the Queen is leasing a luxury Agusta Westland helicopter for a year, it has been reported recently. The helicopter will bear the Royal crest and apparently will be used on a trial basis. According to the Daily Express, a spokesman for the Queen said the monarch had secured an annual lease for a helicopter, for a fixed number of hours. It represented good value for money because it will provide an alternative to chartering a number of different helicopters, the spokesman said. While everyone else consider matters such as whether this is Prince William’s birthday present, the hot topic in the leasing community is - according to Julian Rose at www.assetfinancepolicy.co.uk - the appropriate accounting treatment is for the Royal chopper.

In his blog, he wonders if some are debating whether this is really a lease or a service, given the report that it is based on a ‘fixed number of hours’ which seems to suggest it might actually be more of a service arrangement. It’s tricky however to imagine the royals sharing it with some other local families. The Royal crest also gives us a clue that this is indeed a dedicated asset. Besides, if Her Majesty is telling us that this is a lease, and that leasing represents good value, let’s not argue! So to the heart of the issue.

Will the chopper sit on Her Majesty’s balance sheet? Well stop the average tourist outside Buckingham Palace and ask them that question. They would think you are mad! Of course not they would answer in their many languages - It’s not the Queen’s helicopter, she’s just leased it for a year. Ah yes, but that just shows how few people have heard about the International Accounting Standards Board's planned new lease accounting rules. Assuming the lease is for a full year (and not some lesser period like - well - 364 days, because that just wouldn’t be worth worrying about, would it?) the Royal balance sheet would indeed need to show a new asset.

OK, not actually the whole helicopter, but a chunk of it. Perhaps roughly equivalent to the tail boom and one of the rotor blades, possibly both. Some might argue it’s actually the tail boom, both rotor blades and also the chassis, because it seems there may be an option for the Queen to extend the lease. The Royal family is very unlikely however to need to worry about accounting for the cabin with the leather seats or the engine, and certainly not the tail fins.

Why does the IASB think this is the right accounting treatment? Well, it’s not entirely clear. The rules have been under development for so long now no-one can quite remember what problem they were trying to solve. However the main thing is that the Queen is happy with her lease. Let’s just hope Her Majesty has accountants with time on their hands to sort out the Royal assets and liabilities.

Source: Leasing World