Accounting Alerts

IASB Proposes Relief for Rent Concessions During the COVID-19 Pandemic

This Accounting Alert is issued to circulate and summarize the exposure draft published by the International Accounting Standards Board (IASB) which proposes for relief when accounting for rent concessions during the COVID-19 pandemic.

Background

The IASB has proposed to amend IFRS 16, Leases, to make it easier for lessees to account for COVID-19-related rent concessions such as rent holidays and temporary rent reductions.  The objective of the amendment is to give timely relief to lessees when applying IFRS 16 to COVID-19-related rent concessions while still enabling them to provide useful information about their leases to investors.

IFRS 16 specifies how lessees should account for changes in lease payments, including concessions. However, applying those requirements to a potentially large volume of COVID-19-related rent concessions could be practically difficult, especially in the light of the many challenges stakeholders face during the pandemic. IFRS 16 requires lessees to assess individual lease contracts to determine whether the concessions are to be considered lease modifications and, if that is the case, the lessee must remeasure the lease liability using a revised discount rate.

The Practical Expedient

The proposed amendment would exempt lessees from having to consider whether particular COVID-19-related rent concessions are lease modifications, allowing them to account for these changes as if they were not lease modifications. The proposed practical expedient is only applicable to rent concessions provided as a direct result of the COVID-19 pandemic. The relief is only proposed for lessees that are granted these rent concessions.

All of the following conditions in relation to the practical 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 in 2020. So payments included are those required to be reduced in 2020, but subsequent rental increases can go beyond 2020.
  • There are no other substantive changes to the other terms and conditions of the lease.

Next Steps

The exposure draft is open for comment until May 8, 2020. The exposure draft proposes the amendment be 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 the date the amendment is issued.

See attached Accounting Alert for further details.