Retailers face six-month countdown until lease accounting changes take effect

Let the countdown begin! The arrival of new lease accounting regulations is on the horizon, less than 6 months out – January 2019. The new changes will require lease liabilities to be brought onto the balance sheet, requiring retail operators to recognize and report almost all lease obligations which has not necessarily been the case in the past. The purpose of this change by FASB is to improve transparency, comparability and financial reporting. This implementation of new leasing standards could expose billions of dollars in lease liability across the retail industry.

Retail companies will be reporting more liabilities on their balance sheets beginning in January 2019. It is estimated that at least 35% of global retail entities will see an increase in debt of over 25% according to PWC, with a median increase in debt of almost 100%. This change will add a new level of complexity to retailers as they look to structure their operations into the future. Commercial lease reporting requirements will affect renewal option periods, outsourcing arrangements and financial implications of sale-leasebacks and build to suit contracts. The new changes to our accounting standards will impact commercial real estate decisions (purchase vs. lease) moving forward and allow for reliance of cross-border global standardization.

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