The International Accounting Standards Board (IASB) has published amendments to IFRS 16 which mean that for coronavirus-related rent concessions (eg rent holidays and temporary rent reductions) lessees can choose not to consider lease modification accounting.
The amendment applies retrospectively and is effective 1 June 2020. It can be applied earlier in interim or annual financial statements not authorised for issue as at 28 May 2020.
The practical expedient only applies to rent concession occurring as a direct consequence of the coronavirus pandemic and only if all of the following conditions are met:
- the revised lease consideration is substantially the same or less than the lease consideration prior to the rent concession;
- lease reductions only affect lease payments originally due on or before 30 June 2021; and
- there is no substantive change (qualitatively or quantitatively) to other terms and conditions of the lease.
The practical expedient is only available to lessees and, whilst optional, must be applied consistently to leases with similar characteristics and in similar circumstances.
Entities are required to disclose:
- that the practical expedient has been applied to all qualifying rent concessions; or
- the nature of contracts it has been applied to; and
- the resultant amount recognised in profit or loss to reflect changes in lease payments.
This disclosure is important to address the impact of using the practical expedient when comparing lessees. Disclosure of the nature and cash flow effects of rent concessions are relevant whether or not the practical expedient is applied.
For further information, please speak to Paul Merris.