Amendment to IFRS 16: Leases – Covid-19-Related Rent Concessions
Covid-19-Related Rent Concessions is issued by the International Accounting Standards Board (Board).
In May 2020 the Board provided a practical expedient that permits lessees not to assess whether rent concessions that occur as a direct consequence of the covid-19 pandemic and meet specified conditions are lease modifications and, instead, to account for those rent concessions as if they were not lease modifications. The Board provided the practical expedient in response to information about the effects of the covid-19 pandemic.
The Board was informed that many lessors are providing rent concessions to lessees due to the pandemic. The Board learned that lessees could find it challenging to assess whether a potentially large volume of covid-19-related rent concessions are lease modifications and, for those that are, to apply the required accounting in IFRS 16, especially in the light of the many challenges lessees face during the pandemic. Further, those challenges arising during the pandemic add to lessees’ work in implementing the new lessee accounting model in IFRS 16. The Board concluded that the practical expedient would provide relief to lessees, while enabling lessees to continue providing useful information about their leases to users of financial statements (see paragraph BC205F). To provide the relief when needed most, the Board enabled the immediate application of the amendment in any financial statements—interim or annual—not authorised for the issue at the date the amendment was issued.
The Board decided to permit, but not require, a lessee to apply the practical expedient. Some lessees (for example, those with systems to address changes in lease payments) may prefer to apply, or have already applied, the requirements in paragraphs 36–46 of IFRS 16 to all lease contracts changes. A lessee that chooses to apply the practical expedient would be required by paragraph 2 of IFRS 16 to apply it consistently to all lease contracts with similar characteristics and in similar circumstances.
Para 46A; As practical expedient, a lessee may elect not to assess whether a rent concession that meets the conditions in paragraph 46B is a lease modification. A lessee that makes this election shall account for any change in lease payments resulting from the rent concession the same way it would account for the change applying this Standard if the change were not a lease modification.
Para 46A is very important, and significant change as this means effectively that you do not need to reassess your lease arrangements with all what it comes with in terms of changes in numbers and it recalculations.
Para 46B; The practical expedient in paragraph 46A applies only to rent concessions occurring as a direct consequence of the covid-19 pandemic and only if all of the following conditions are met:
- The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change:
- b. Any reduction in lease payments affects only payments originally due on or before 30 June 2021:
(for example, a rent concession would meet this condition if it results in reduced lease payments on or before 30 June 2021 and increased lease payments that extend beyond 30 June 2021); and
- There is no substantive change to other terms and conditions of the lease.
If a lessee applies the practical expedient in paragraph 46A, the lessee shall disclose:
- That it has applied the practical expedient to all rent concessions that meet the conditions in paragraph 46B or, if not applied to all such rent concessions, information about the nature of the contracts to which it has applied the practical expedient (see paragraph 2); and
- The amount recognised in profit or loss for the reporting period to reflect changes in lease payments that arise from rent concessions to which the lessee has applied the practical expedient in paragraph 46A.
Covid-19-Related Rent Concessions, issued in May 2020, added paragraphs 46A, 46B, 60A, C20A and C20B. A lessee shall apply that amendment for annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted, including in financial statements not authorised for issue on 28 May 2020.
A lessee shall apply Covid-19-Related Rent Concessions (see paragraph C1A) retrospectively, recognising the cumulative effect of initially applying that amendment as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the annual reporting period in which the lessee first applies the amendment.
In the reporting period in which a lessee first applies Covid-19-Related Rent Concessions, a lessee is not required to disclose the information required by paragraph 28(f) of IAS 8.