In the light of the pandemic the International Accounting Standards Board has issued an amendment to IFRS 16 Leases to facilitate the accounting treatment for lessees when it comes to covid-19 related rent concessions.
This amendment permits lessees to elect not to assess whether rent concessions received as a result of the covid-19 pandemic (and which meet certain specified conditions)to be considered as lease modifications.Under normal circumstances IFRS 16 identifies how lessees are required to account for changes in lease payments, including concessions, as a lease modification. However, applying that requirement to a large volume of covid-19 related rent concessions could be difficult.A lessee that opts for such an election shall account for any change in lease payments resulting from the rent concession in the same way it would account for the change applying this Standard if the change was not a lease modification.
This amendment does not affect the accounting of the lessors.
The specified conditions that need to be met to be exempt from treating the change in lease payments as lease modifications will only apply to:
- Revised lease payments that are substantially the same as or less than the contracted lease paymentsthat were in place immediately preceding the change;
- eduction in lease payments originally due on or before 30 June 2021
- Lease contracts that have no changes to other terms and conditions of the lease
- If a lessee applies this practical expedient to all rent concessions that meet the above specified conditions, the lessee shall disclose that it has applied the practical expedient to all rent concessions that meet the conditions.If the practical expedient is not applied to all such rent concessions, information about the nature of the contracts to which it has applied the practical expedient must be disclosed;
- the lessee shall disclose the amountsrecognized in the profit or loss for the reporting period to reflect the revised lease payments derived fromrent concessionsto which the lessee has applied the practical expedient on;
The lessee is permitted to report the above changes in reporting periods beginning on or after 1 June 2020 although earlier application is permitted in any interim or annual financial statements not yet authorised for issue.