On 28 May 2020, the IASB issued amendments to IFRS 16, which provide relief for lessees in accounting for rent concessions granted as a direct consequence of COVID-19.
BDO has published several detailed publications on these amendments, including FAQs, which are available here.
The rationale for those amendments was that the IASB had received feedback that lessees were experiencing significant operational difficulty in applying the requirements of IFRS 16 for rent concessions. Many types of rent concessions provided to lessees as a result of COVID-19 met the definition of a lease modification, which would have required lessees to remeasure the lease liability based on the revised consideration using a revised discount rate. The IASB noted while this requirement is not typically onerous, it becomes challenging to apply for lessees with potentially hundreds or thousands of leases, especially when entities are experiencing significant other operational disruptions due to the effects of COVID-19. Without relief, entities would also have been required to assess whether each change to a lease contract met the definition of a lease modification, which would have added another layer of complexity.
If the lease modification requirements had been applied, any change in the lease liability would have resulted in an adjustment to the right-of-use asset, meaning the benefit of the concession would generally have been reflected in reduced depreciation expenses in the current and future periods, rather than in the period to which the concession related.
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