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Retailers Reeling From Rent Woes Seek Relief on Lease Accounting

April 3, 2020, 7:16 PM

As the coronavirus pandemic forces businesses to shutter storefronts and furlough workers, retailers want one less worry on their plates: accounting.

A group representing companies like Macy’s Inc., Modell’s Sporting Goods, and Ralph Lauren Corp. asked U.S. accounting rulemakers Friday to relax accounting rules on how to treat modifications to lease agreements like rent concessions many are asking from their landlords. If cash-strapped retailers get breaks on rent, that could trigger complex rules under the Financial Accounting Standards Board’s ASC 842 at a time when retailers are struggling to stay afloat, the National Retail Federation said.

“We are very concerned that the current accounting model for such concessions could cause significant hardship on our members,” the group wrote. It said redoing calculations would be onerous for a company with hundreds or even thousands of leases.

  • Rent relief under FASB’s lease accounting rules is treated in two different ways. If a lease contains a clause allowing a rent break because of unforeseeable circumstances like a hurricane or earthquake, the business records a variable lease payment.
  • If the lease contains no such clause, the business may have to account for the break as a lease modification. A lease modification forces a company to re-measure its lease accounting calculations, said Matt Waters, director of lease accounting at CoStar Group.
  • FASB is reviewing the group’s request, a spokesperson said.
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To contact the reporter on this story: Nicola M. White in Washington at nwhite@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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