EPRA survey slams IASB leasing proposals

Several leading European retailers have voiced their objections to the International Accounting Standards Board's (IASB) proposed lease accounting changes in a survey carried out by PwC on behalf of the European Public Real Estate Association (EPRA).

The new rules mean that property tenants will be required to record lease arrangements in a similar way to a bank loan, with rental obligations during the period of the lease contract shown as an outstanding liability on their balance sheets.

The eighteen retailers polled say the new lease accounting model is not in line with how tenants view property leasing, namely as a means to secure selling space and cost and operational flexibility rather than as a financing arrangement. They also disagree with the inclusion of renewal options and contingent rents based on performance in measuring lease assets and liabilities. Moreover, the proposed accounting method will require significant compliance costs, the retailers claim.

EPRA said it undertook the survey because it had concerns over the lack of awareness of the changes. The association is keen to encourage the exchange of information within the tenant and lessor communities to better anticipate and prepare for a move to a very different reporting framework.

EPRA's director of Finance, Gareth Lewis said: 'The survey highlights just how much of a change the new rules will be for those retail businesses that rent their premises. Our major concern, which is borne out by the survey, is that businesses view their lease arrangements as a flexible and cost-efficient means to secure premises in which to carry out their business, rather than a financing arrangement as indicated by the proposed new rules.'

Lewis added: 'The fact that the new accounting rules diverge from how businesses actually view their leasing arrangements could lead to distortive behaviour, unnecessary complexity, a reduction in the usefulness of company financial statements and ultimately poor business decisions.'