IASB publishes proposed amendment regarding COVID-19-related rent concessions
24 April 2020
The International Accounting Standards Board (IASB) has published an
exposure draft Covid-19-Related Rent Concessions (Proposed amendment to IFRS
16) that contains a proposed amendment that would provide lessees with an
exemption from assessing whether a COVID-19-related rent concession is a lease
modification. Comments are requested by 8 May 2020.
Background
The COVID-19 pandemic has led to some lessors providing relief to
lessees by deferring or relieving them of amounts that would otherwise be payable.
In some cases this is through negotiation between the parties, but can be as a
consequence of a government encouraging or requiring that the relief be provided.
Such relief is taking place in many jurisdictions in which entities that apply IFRSs
operate.
When there is a change in lease payments, the accounting
consequences will depend on whether that change meets the definition of a lease
modification, which IFRS 16 Leases defines as “a change in the scope of a
lease, or the consideration for a lease, that was not part of the original terms and
conditions of the lease (for example, adding or terminating the right to use one or
more underlying assets, or extending or shortening the contractual lease term)”.
The proposed amendment published today are intended to provide
practical relief to lessees in accounting for rent concessions arising as a result
of the COVID-19 pandemic.
Suggested changes
The changes proposed in ED/2020/2 Covid-19-Related Rent
Concessions (Proposed amendment to IFRS 16) would amend IFRS 16 to
- (a)provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification;
- (b)require lessees that apply the exemption to account for COVID-19-related rent concessions as if they were not lease modifications;
- (c)require lessees that apply the exemption to disclose that fact; and
- (d)require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require them to restate prior period figures (a lessee would recognise any difference arising on initial application of the amendment in opening retained earnings (or other component of equity, as appropriate) in the annual reporting period that includes the date of initial application).
The proposed amendment would not supersede the educational
material recently published on the same topic, but rather the
two complement each other.
The IASB is not proposing any additional relief for lessors as the
current situation is not as equally challenging for lessors, as most have operating
leases and even if they have lease modifications, the required accounting is not as
complicated.
Comment period
The IFRS Foundation's Due Process Handbook sets out that 75% of the
Trustees must approve comment periods shorter than 30 days. In a phone meeting on 17
April 2020, the Trustees approved a 14-day comment period. Therefore, comments on
the proposed changes are requested by 8 May 2020.
Effective date
The Board expects to finalise the amendment to IFRS 16 by the end of
May 2020 and proposes an effective date of 1 June 2020 for the final amendment
(earlier application permitted, including in financial statements not yet authorised
for issue at the date the amendment is issued).
Additional information
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