New lease accounting standards received mixed support from Big Four firm Ernst & Young which support moves to bring more liabilities on to the balance sheet, but want to give businesses more time to absorb the changes.
The rules aim to bring lease commitments on to the balance sheets of major listed companies. The proposals aim to demystify lease accounting and force major lessees and lessors to recognise greater liabilities in their published accounts.
The rules would likely hit the retail sector hardest with ten of the most well known supermarket chains – including Tesco, Sainsbury’s and Morrisons – holding an estimated £45bn in lease commitments, according to a study of their published accounts.
Ernst & Young said while the standard will make financial statements more transparent, the standard lacks an underlying principle.
“We do not believe that the board have appropriately articulated an underlying principle related to the obligation and related asset to be recognised,” the accounting firm said in its submission.
“Given the significance of the changes being proposed and the board applicability to most entities we strongly encourage the boards to reconsider the proposed timetable for issuance of a final standard.”
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