Accounting Alerts

IASB Amends IFRS 16 to Provide Relief for Lessees Accounting for Rent Concessions during the COVID-19 Pandemic

This Accounting Alert is issued to summarize the amendments to IFRS 16 issued by the IASB on May 28, 2020 to help lessees account for COVID-19-related rent concessions such as rent holidays and temporary rent reductions.

Executive Summary

The International Accounting Standards Board (IASB) has published IFRS 16 (Amendments), Leases - COVID-19-Related Rent Concessions. The amendment adds a practical expedient to IFRS 16 which provides relief for lessees in assessing whether specific COVID-19 rent concessions are considered to be lease modifications. Instead, if this practical expedient is applied, these rent concessions are treated as if they are not lease modifications. There are no changes for lessors.

The Practical Expedient

The practical expedient allows lessees to elect to not carry out an assessment to decide whether a COVID-19-related rent concession received is a lease modification. The lessee is permitted to account for the rent concession as if the change is not a lease modification. The practical expedient is only applicable to rent concessions provided as a direct result of the COVID-19 pandemic. The relief is only for lessees that are granted these rent concessions. There are no changes for lessors. All of the following conditions in relation to the lessee expedient need to be met:

  • The rent concession provides relief to payments that overall results in the consideration for the lease contract being substantially the same or less than the original consideration for the lease immediately before the concession was provided.
  • The rent concession is for relief for payments that were originally due on or before June 30, 2021. So payments included are those required to be reduced on or before June 30, 2021, but subsequent rental increases of amounts deferred can go beyond June 30, 2021.
  • There are no other substantive changes to the other terms and conditions of the lease.

Disclosure

If applying the practical expedient, the amendments require the entity to disclose:

  • that it has applied the practical expedient to all its rent concessions, or if only some of them, a description of the nature of the contract it has applied the practical expedient to; and,
  • the amount in profit or loss for the reporting period that reflects the change in lease payments arising from rent concessions (as a result of applying the practical expedient).

Effective Date

The amendment is applicable for reporting periods beginning on or after June 1, 2020. Earlier application will be permitted, including for financial statements not yet authorized for issue at May 28, 2020 (the date the amendment was issued).

 

See attached Accounting Alert for further details.