Accounting Changes Balloon Liabilities For Chipotle, Nordstrom

Securities and Exchange Commission

Changes in lease accounting standards have led top retailers and restaurant chains in the U.S. to significantly increase their liabilities, leaving some investors caught off guard, according to Bloomberg Tax reports Wednesday (June 5).

The lease accounting standard overhauls, led by the Securities and Exchange Commission (SEC), change the way companies report their lease commitments. Companies reportedly anticipated increases on their balance sheets, but for some firms, including Chipotle, Nordstrom and others, balance sheets ballooned dramatically.

Chipotle Mexican Grill Inc. saw its liabilities triple, while McDonald’s Corp. saw its liabilities grow by one-third.

On the retail side, Nordstrom posted a nearly 25 percent increase in liabilities.

The Cheesecake Factory, Kohl’s, Best Buy and JCPenny are also among the capital-intensive firms that saw their balance sheets grow significantly. Todd Castagno, accounting and tax policy analyst with Morgan Stanley Research, told the publication investors were blindsided by the impact that the lease accounting standards had on many firms: on average, reports said, operating lease liabilities grew by nearly 50 percent in the consumer discretionary sector.

That compares to the average 10 percent increase that the accounting standard changes account for in other markets, CFRA Research Global Director of Research and Analytics Zach Gast told the publication.

Despite the impact, analysts are urging investors to be aware that the lease accounting standard changes do not have an impact on the value of a company, but simply more accurately reflect operating costs. According to reports, the changes are expected to move as much as $4 trillion worth of equipment and other leases onto balance sheets.

Earlier this week reports revealed that the SEC’s top accountant position is now open, left vacant by Chief Accountant Wes Bricker, who led multiple accounting standard changes, including the lease accounting standard change.

His replacement will be responsible for leading more upcoming changes in accounting and auditing standards that are expected to have significant impacts on the banking sector.