New rules on leases will mean big changes for retail results as we know them, ICAEW has warned. It its report Audit Insights: Retail – Are you ready for radical change? the accountancy and finance body warns that the impact of IFRS 16 Leases will mean financial ratios and performance measures look very different and that companies should start to prepare now.
Under IFRS 16, nearly all leases will have to be reported on company balance sheets. Retailers, who often hold large numbers of leased properties and other operational assets, will need to change their accounting to reflect this. There will be challenges in comparability of results across the retail sector, at the simplest between retailers who use IFRS and those that continue to use UK GAAP.
Julie Carlyle, chair of the Audit Insights: Retail working group, said: “It is vital that retailers start preparing for this now, because the impact is going to be significant and it is going to mean a lot of work. Companies need to ask themselves some key questions. Are they ready to do this? Do they have the right resources? Have boards and management investigated the financial and commercial impact? What are the knock-on effects for their relationship and dialogue with banks, investors, landlords and other stakeholders? Have these discussions started?
“With the challenges facing the sector it is easy for this to fall down the priority list but it needs to be near the top.”
IFRS 16 will apply to accounting periods beginning on or after 1 January 2019. The full report, including key challenges and considerations, is available here