The IASB held a supplementary meeting to consider the accounting for COVID-19-related rent concessions.

The IASB is aware of the fact that the COVID-19 pandemic has led to some lessors providing relief to lessees by deferring or relieving them of amounts that would otherwise be payable. In some cases, this results from negotiations between the parties but can also be a consequence of a government encouraging or requiring that the relief be provided.

When there is a change in lease payments, the accounting consequences will depend on whether the change meets the definition of a lease modification or not. The IASB states that during the COVID-19 pandemic this assessment could be very complex and difficult.

Therefore, the IASB agreed to amend IFRS 16 to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification.

Proposed practical expedient

The amendment to IFRS 16 should be done by adding a practical expedient along the following lines:

• A lessee may elect not to assess whether a COVID-19-related rent concession is a lease modification. A lessee that makes this election shall account for any change in lease payments resulting from the COVID-19-related rent concession consistently with how it would account for the change applying IFRS 16 if the change were not a lease modification.
• The practical expedient would apply only to rent concessions occurring as a direct consequence of the COVID-19 pandemic and only if all of the following conditions are met:

1. 1. The change in lease payments results in revised consideration for the lease that is the same as, or less than, the consideration for the lease immediately preceding the change;
   2. Any reduction in lease payments affects only payments originally due in 2020 (a rent concession would meet this condition if it results in reduced lease payments only in 2020 and increased lease payments in 2020 or periods thereafter); and
   3. There is no substantive change to other terms and conditions of the lease.

• A lessee that apply the exemption should disclose that fact.
• The exemption should be applied 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 reporting period in which a lessee first applies the amendment.

The IASB will issue an Exposure Draft of an amendment to IFRS 16 by 27 April 2020 with only a 14-day comment period. IASB expects that the final amendment to IFRS 16 could be issued by the end of May 2020 and it will be effective immediately.

Notes from the supplementary meeting of IASB from 17. 4. 2020 can be found here.

We will provide updated information on the proposed changes in IFRS 16 in our next issue of dReport.