Lease-loving retailers would see debt soar under new rule

September 30, 2013 04:06PM

New York City retailers would be required to include the amount of financing they use to lease real estate on their balance sheets, rather than in the footnotes of their financial statements, under a new rule from a private group that sets widely accepted accounting standards.

Under the proposed accounting method, advanced by the Financial Accounting Standards Board, companies could see a spike in their total reported debt.

After the U.S. Securities and Exchange Commission expressed concerns over off-balance-sheet transactions, the FASB and the International Accounting Standards Board worked on this new rule, which they are likely to finalize next year.

New York leasing heavyweights that would see an increase in reported liabilities include Aéropostale (225 percent), Foot Locker (222 percent), Ann Taylor (193 percent), Tiffany & Company (57 percent) and Barnes & Noble (51 percent).

Georgia Tech accounting professor Charles Mulford told Crain’s that the change will have “material effects” on profitability, financial leverage, cash flow and other measures that are important to investors. The true impact, however, will not be apparent to investors for at least three years. [Crain’s]Mark Maurer