Beware of COVID 19 Rent concessions IFRS accounting

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.

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Best focus on IFRS 16 Leases

Focus on IFRS 16 Leases

 

Best focus on IFRS 16 LeasesBest focus on IFRS 16 Leases

Focus on IFRS 16 Leases 2

Focus on IFRS 16 Leases 3

(Source https://www.bdo.global/en-gb/services/audit-assurance/ifrs/ifrs-at-a-glance)

Focus on IFRS 16 Leases or in slightly more detail…..

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IFRS 7 Financial instruments Disclosures High level summary

Scope IFRS 7 Financial instruments Disclosures High level summary

IFRS 7 applies to all recognised and unrecognised financial instruments (including contracts to buy or sell non-financial assets) except:

  • Interests in subsidiaries, associates or joint ventures, where IAS 27/28 or IFRS 10/11 permit accounting in accordance with IAS 39/IFRS 9
  • Assets and liabilities resulting from IAS 19
  • Insurance contracts in accordance with IFRS 4 (excluding embedded derivatives in these contracts if IAS 39/IFRS 9 require separate accounting)
  • Financial instruments, contracts and obligations under IFRS 2, except contracts within the scope of IAS 39/IFRS 9
  • Puttable instruments (IAS 32.16A-D).

Disclosure requirements: Significance of financial instruments in terms of the financial position and performance

Statement of financial position

Statement of

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11 Best fair value measurements under IFRS 13

11 Best fair value measurements under IFRS 13 – Several IFRS standards provide guidance regarding the scope and application of for assets and liabilities. Here they are from 1 to 11…….

1 Investments in associates and joint ventures

Investments held by venture capital organizations and the like are exempt from IAS 28’s requirements … Read more

Main FS Statements Insurance contracts

Main FS Statements Insurance contracts – These examples of the main Financial Statements statements demonstrate the requirements in respect of presentation and disclosure according to IFRS 17 Insurance contracts. They also includeMain FS Statements Insurance contracts the requirements (introduced or amended) in respect of presentation and disclosure according to IFRS 9 Financial instruments and IFRS 7 Financial instruments: Disclosures.

It is prepared for illustrative purposes only and should be used in conjunction with the relevant financial reporting standards and any other reporting pronouncements and legislation applicable in specific jurisdictions. Main FS Statements Insurance contracts

Presentation of insurance service result Main FS Statements Insurance contracts

 

IFRS 17 83,
85,
B120 – B127

Clarifications:

Insurance revenue reflects the consideration to which the

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Presentation Insurance contracts

Presentation Insurance contractsPresentation Insurance contracts – IFRS 17 specifies minimum amounts of information that need to be presented on the face of the statement of financial position and statement of financial performance. These are supplemented by disclosures to explain the amounts recognized on the face of the primary financial statements (see ‘Disclosure of Insurance contracts’).

IFRS 17 requires separate presentation of amounts relating to insurance contracts issued and reinsurance contracts held in the primary statements. There is nothing to prevent an entity from providing further sub-analysis of the required line items (which may make the relationship of the reconciliations to the face of the statement of financial position more understandable).

Indeed, IAS 1 Presentation of Financial Statements requires presentation of additional line Read more

Insurance Contract modification and derecognition

Contract modification and derecognition – A contract that qualifies as an insurance contract remains so until all rights and obligations are extinguished (i.e., discharged, cancelled or expired) unless the contract is derecognised because of a contract modification [IFRS 17 B25]. Contract modification and derecognition

IFRS 4 contained no guidance on when or whether a modification of an insurance contract might cause derecognition of that contract. Therefore, prior to IFRS 17, most insurers would have applied the requirements, if any, contained in local GAAP. ConInsurance coveragetract modification and derecognition

1. Modifications of insurance contracts

An insurance contract may be modified, either by agreement between the parties or as result of regulation. If the terms are modified, an entity must Read more

Measurement of contracts with participation features

Measurement of contracts with participation features – Entities that issue participating contracts (referred to in the standard as contracts with participation features) provide policyholders with a financial return on the premiums they pay by sharing the performance of underlying items with policyholders. Participating contracts can include cash flows with different characteristics, for example:

  • Cash flows that do not vary with returns from underlying items, e.g., death benefits and financial guarantees Measurement of contracts with participation features
  • Cash flows that vary with returns from underlying items — either via a contractual link to the returns on underlying items or through an entity’s right to exercise discretion in determining payments to policyholders Measurement of contracts with participation features

The cash flows of Read more

Challenges in financial reporting

Challenges in financial reporting – There are specific problems that affect the different bases of measurement available to financial reporting: historical cost, value to the business, fair value, realisable value and value in use. How the different bases work will be considered separately, but it will be helpful to look first at some issues that generally beset financial reporting measurement.

When applied to financial reporting the term measurement can give a misleading impression of certainty and objectivity. In daily life, measurements are typically made of the physical characteristics of physical objects – such as height, weight, temperature and so on. If accurate measurement tools are employed, information of this sort is objective and uncontroversial. The subjects of measurement … Read more

Taking a bath accounting big bath strategies

Taking a bath accounting big bath strategies – This is a note on the innovative history of Philips’ financial reporting, see the ‘Introduction to a history of innovation in financial reporting‘.

From 1912 onwards, 11 periods are identified in which different CEO’s were in charge. A distinction has to be made between non-routine (NR) and routine CEO turnover. In literature considerate evidence has been found that when approaching CEO turnover, 1) income reducing accruals, 2) research and development and 3) depreciation (all directly impact income) are managed to affect the company result. Taking a bath accounting big bath strategies

Using the current accruals instead of total accruals may increase the power of the test because firms are more … Read more