Click Fraud Protection

New Commercial Property Lease Accounting Rules 'Could Add £200bn to British Balance Sheets’

Written by: Steven Jones on Friday 18/03/2016

Share this:

Changes to the accounting rules around commercial property leases could see as much as £200 billion added to the balance sheets of British companies.

That’s according to recent research that suggests newly introduced adjustments to accounting regulations could have a heavy impact on some of the UK’s biggest companies.

At the heart of the matter are new rules currently being phased in by the International Accounting Standards Board (IASB), which will soon oblige British companies to recognise all their commercial property lease liabilities on their balance sheets.

The new rules are being framed as a drive for greater transparency and companies have three years to comply with the relevant regulations which were officially introduced in early 2016.

Figures compiled in line with International Financial Reporting Standards (IFRS) indicate that somewhere close to 85 per cent of all lease commitments in the UK are not currently detailed on company balance sheets.

All of which could see British firms needing to add in the region of £200 billion worth of property lease assets to their balance sheets before the end of the decade, it has been claimed.

“Under the new rules, occupiers with large portfolios of leased assets will see a significant increase in their balance sheet. The changes have been brought in due to a lack of transparency and comparability,” explained Paul Fry from the property consultancy behind the research on the subject.  

“The information on operating lease liabilities currently declared within financial statements is insufficient for analysts, credit rating agencies and investors to be able to draw a clear picture of a company’s financial health,” he added.  

Among the companies expected to be most significantly impacted by the accounting rule changes are retailers who typically operate with relatively slender profit margins.

Tesco, the UK’s largest supermarket chain and grocery retailer, could apparently see its net debt increase from around £8.6 billion to £17.6 billion over the next three years as a result of the adjusted rules on property lease liability reporting.

“The new regulations mean it is imperative that companies maintain detailed records for individual leases,” noted Hannah Coleman, from the firm behind the recent research.

“Corporate Real Estate teams can also expect greater focus from the wider business on property strategy and the negotiation of lease terms.”

The new rules are being framed as a drive for greater transparency and companies have three years to comply with the relevant regulations which were officially introduced in early 2016.

Written by: Steven Jones on Friday 18/03/2016

Share this:

Read Next or Previous News Article

Get In Touch

If you have a specific query, please complete the form below and an appropriate expert will call you back promptly.

© Eddisons 2017