The International Accounting Standards Board (IASB) has been informed that many lessors around the world have provided, or are expected to provide, rent concessions to lessees as a result of the Covid-19 pandemic.

Such rent concessions are particularly prevalent for leases of retail property and, in some cases, are encouraged or required by governments or jurisdictional authorities. Rent concessions include rent holidays or rent reductions for a period of time, possibly followed by increased rent payments in future periods.

IFRS 16 Leases contains requirements that specify the accounting for changes in lease payments, including rent concessions. However, the board has been informed that applying those requirements to a potentially large volume of Covid-19-related rent concessions could be practically difficult, especially in the light of the many challenges stakeholders face during the pandemic.

In particular, lessees have identified potential difficulties in the current environment in assessing whether Covid-19-related rent concessions are lease modifications and, for those that are, applying the required accounting.

In addition, many lessees are currently preparing their first annual financial statements applying IFRS 16. Any complexity arising as a result of the Covid-19 pandemic therefore adds to the work being undertaken in implementing the new lessee accounting model in IFRS 16.

The objective of the proposal in this Exposure Draft is to provide lessees with practical relief during the Covid-19 pandemic while enabling them to continue providing useful information about their leases to users of financial statements.

Proposal in the Exposure Draft

The Exposure Draft proposes an amendment to IFRS 16 to permit lessees, as a practical expedient, not to assess whether particular Covid-19-related rent concessions are lease modifications. Instead, lessees that apply the practical expedient would account for those rent concessions as if they were not lease modifications. The Exposure Draft proposes no change for lessors.

Who would be affected by the proposal?

The proposal in this Exposure Draft would affect lessees that are granted rent concessions as a direct consequence of the Covid-19 pandemic during 2020, and users of these lessees’ financial statements.

Next step

The Board will consider the comments that it receives on the proposal in this Exposure Draft and will decide whether to proceed with the proposed amendment. The Board plans to complete any resulting amendment to IFRS 16 by the end of May 2020.

The exposure draft is open for comment until 8 May.

In addition, IASB has published educational materials outlining the issues regarding IFRS 16 and Covid-19.

Exposure Draft Covid-19-Related Rent Concessions Proposed amendment to IFRS 16 is here.

Educational materials are here.