IASB extends accounting relief for COVID-19 related rent concessions
The International Accounting Standards Board (IASB) has taken the action of extending the practical expedient for COVID-19 related rent concessions under IFRS 16 by one year, to cover rent concessions that reduce only lease payments due on or before 30 June 2022, provided the other conditions for applying the practical expedient are met.
The 2021 amendment (COVID-19-Related Rent Concessions beyond 30 June 2021) has been created in an effort to provide further relief for lessees in light of the prolonged challenges caused by the coronavirus pandemic.
The new amendment is effective for annual reporting periods beginning on or after 1 April 2021.
The Board issued the original version of the amendment in May 2020 to lighten the burden on lessees when accounting for COVID-19 related rent concessions, such as rent holidays, payment deferrals and partial rent forgiveness, while continuing to deliver information about their leases to shareholders and investors. The amendment provided an exemption that made it easier on the lessee when assessing whether a COVID-19-related rent concession is a lease modification. When issued, the practical 2020 expedient was limited to rent concessions for which any reduction in lease payments affects only payments originally due on or before 30 June 2021.
With the economic pressures presented by the COVID-19 pandemic enduring much longer than expected, many lessees have been requesting and negotiating rent concessions from lessors that extend beyond 30 June 2021. As a result, the IASB has decided to extend the availability of the practical expedient by 12 months.
The 2021 amendment modifies IFRS 16 to
- permit a lessee to apply the practical expedient regarding COVID-19-related rent concessions to rent concessions for which any reduction in lease payments affects only payments originally due on or before 30 June 2022 (rather than only payments originally due on or before 30 June 2021);
- require a lessee applying the amendment to do so for annual reporting periods beginning on or after 1 April 2021;
- require a lessee applying the amendment to do so retrospectively, recognising the cumulative effect of initially applying the 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;
- specify that, in the reporting period in which a lessee first applies the amendment, a lessee is not required to disclose the information required by paragraph 28(f) of IAS 8.
Applying the practical expedient
To help organisations effectively apply the recently extended concessions, IRIS Innervision has developed functionality within our lease accounting solution that accommodates both the IASB and FASB COVID-19 rent related concessions.
As the IASB is not explicit as to how to account for COVID-19 Rent Concessions, our system offers three common accounting approaches for users to select from with in-built validations customised by the customer with associated disclosures.
IRIS Innervision recommends and encourages preparers to speak with their auditors regarding the preferred accounting method, as not all audit firms have adopted the same approach.
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Disclaimer: this article contains general information about the new lease accounting standards only and should NOT be viewed in any way as professional advice or service. The Publisher will not be responsible for any losses or damages of any kind incurred by the reader whether directly or indirectly arising from the use of the information found within this article.