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Accounting in the retail industry

A new view of lease accounting emerges

Retail

Background

The International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) are undertaking a joint project that would overhaul the current leasing model. The objective of the project is to develop a new approach that better reflects the economics of a lease and provides greater transparency to users of financial statements. Because leasing is such a significant source of financing for many companies, the implications for retailers are significant.

This report highlights several of the key proposals in the recently issued Exposure Draft on Leases and provides insights on how these proposals may affect the retail industry. It highlights the most significant proposed changes from current leasing rules:

  • Impact of capitalization of all leases on financial statements
  • Accounting for contingent rentals
  • Determination of lease term
  • Service and lease components of the contract
  • Subleases
  • Disclosure.

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