The International Accounting Standards Board (Board) 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.
Exposure Draft Covid-19-Related Rent Concessions, which proposes an amendment to IFRS 16, is open for public comment until 8 May 2020.
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. The Standard 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 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 amendment would apply to covid-19-related rent concessions that reduce lease payments due in 2020.
The Board has responded quickly to provide support to stakeholders at this difficult time. Accordingly, the comment period on the proposal is short—14 days. The Board aims to issue the final amendment, which would be available to lessees immediately, in May 2020.
The proposed amendment complements the educational materials published on 10 April 2020—IFRS 16 and covid-19.