Beware of COVID 19 Rent concessions IFRS accounting
IFRS 16 amendments Corona Rent concessions provide relief to lessees in accounting for rent concessions.
IFRS 16 Rent concession amendments in a nutshell
The lessee perspective
The amendments to IFRS 16 add an optional practical expedient that allows lessees to bypass assessing whether a rent concession that meets the following criteria is a lease modification:
- it is a direct consequence of COVID-19; Beware of COVID 19 Rent concessions IFRS accounting
- the revised lease consideration is substantially the same as, or less than, the original lease consideration;
- any reduction in the lease payments applies to payments originally due on or before June 30, 2021; and
- there is no substantive change to the other terms and conditions of the lease.
Lessees who elect this practical expedient account for qualifying rent concessions in the same way as changes under IFRS 16 that are not lease modifications. The accounting will depend on the nature of the concession, but one outcome might be to recognize negative variable lease payments in the period in which the lessor agrees to an unconditional forgiveness of lease payments.
Lessees are required to apply the practical expedient consistently to similar leases and similar concessions. They must also disclose if they elected the practical expedient and for which concessions, as well as the amount recognized in profit and loss in the reporting period to reflect changes in lease payments that arise from rent concessions to which they have applied the practical expedient.
The amendments are effective for reporting periods beginning after June 1, 2020, with early application permitted.