Emily Browne, associate partner in the financial accounting and advisory services team at EY, examines the challenges of new accounting rules for food and catering groups with a large real estate portfolio, offering tips and advice on lease modifications, control issues and sub-leases
IFRS 16 Leases, the International Accounting Standards Board’s (IASB) new standard on lease accounting, will have a significant impact for companies in the restaurant and fast food sector. These companies frequently have a substantial leased real estate portfolio reflecting multiple outlets and the use of franchise and concession arrangements. Those companies with high volumes of today’s operating leases, longer leases and arrangements which contain renewal, break or purchase options, are likely to see the most significant financial impacts, as well as experiencing greater complexity in application.
Lessees will need to recognise a lease liability and a right-of-use asset (ROUA) on their balance sheet for the majority of their leases. The profile and classification of expenses in the income statement will change, with depreciation and interest charges being recognised instead of today’s operating lease expense.
