Accounting Alerts

Minor Amendments to PFRS 16

This Accounting Alert is issued to circulate minor amendments made by the International Accounting Standards Board (IASB) to PFRS 16, Leases, with respect to the requirements for sale and leaseback transactions.

Executive Summary

The International Accounting Standards Board (IASB) has issued amendments to PFRS 16, Leases, adding requirements for accounting for a sale and leaseback after the date of the transaction. A sale and leaseback is a transaction for which a company sells an asset and leases that same asset back for a period of time from the new owner.

The Amendments

The IASB has issued additional guidance in PFRS 16 on accounting for sale and leaseback transactions. Previously, PFRS 16 only included guidance on how to account for sale and leaseback transactions at the date of the transaction itself. However, the standard did not specify any subsequent accounting when reporting on the sale and lease back transaction after that date.

As a result, without further requirements, when the payments include variable lease payments, there is a risk that a modification or change in the leaseback term could result in the seller lessee recognising a gain on the right of use retained even though no transaction or event would have occurred to give rise to that gain.

Consequently, the IASB decided to add subsequent measurement requirements for sale and leaseback transactions to PFRS 16.

Applicability

The amendments are applicable for annual reporting periods beginning on or after 1 January 2024, with early application permitted. If the amendments are applied in an earlier period, this should be disclosed in the notes to financial statements.

 

See attached Accounting Alert for further details.