Lease accounting for retailers - the biggest-ever accounting change?

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The FASB and the IASB are currently working together to revise lease accounting standards - the purpose of their efforts is to reconcile treatments under U.S. GAAP and international financial reporting standards. A joint discussion paper has been published and the Boards have received initial comments. 

These changes are likely to have a very significant impact on retailers' financial statements - and some concerns have already been raised. This paper describes the proposed treatments and their potential impacts, the most of important of which are:

• Under the new rules essentially all leases will be capitalized.
• The new approach will be a "right-of-use" approach.
• The distinction between operating and finance/capital leases will be removed.

Since that time we have had extensive discussions with our retail clients and other interested parties about the proposed changes. Since these changes will have such a big impact on retailers – and there are many concerns – we have just issued another publication Lease accounting proposals – Thoughts for retailers on building counter- arguments.

This new paper describes some of the issues and many of the arguments and points of view expressed by our clients. Some of these issues include:

• Unit of account
• Liability for optional renewals
• The anti-abuse challenge
• Recognition triggers for contingent rents
• Views of the investment community

Download Thoughts for retailers on building counter- arguments (2 Mb)