After Bed Bath & Beyond (BBBY) filed its 2020 10-K, we warned investors that the discount rate of 6.4% the company uses to calculate the present value of its operating leases is significantly inflated when compared with retail peers. Our analysis— which uses a blended average discount rate for BBBY’s peer group of 3.74%— indicates Bed Bath & Beyond is understating the present value of its lease liabilities by approximately $182.1 million, or 7.8% of its future operating lease obligations and 3.5% of total liabilities.

In its latest 10-Q, Bed Bath & Beyond revealed it’s now hiding additional future operating lease liabilities off-balance sheet:

“At May 29, 2021, the Company has entered into 1 lease which has not yet commenced at a new location planned for opening in 2021, which is not included in the above table and for which aggregate minimum rental payments over the term of the lease is approximately $24.5 million.”

Excluding “not yet commenced” leases from the balance sheet is an accounting loophole Bed Bath & Beyond and others are using to hide billions of dollars of liabilities from investors.

This treatment appears inconsistent with FASB’s guidance on the topic. If a lease is legally binding— as Bed Bath & Beyond acknowledges— Topic 842 (ASU 2016-02) makes clear that it must be accounted for on the balance sheet:

“A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)...”