• Accounting Alert January 2022

For-profits: 3 things to remember when preparing 31 December 2021 annual financial reports

The good news for most preparers is that there are only minor changes to for-profit accounting standards for 31 December 2021 reporting. This article summarises the key things to remember.

Our NZ IFRS Illustrative Financial Statements  and NZ IFRS RDR Illustrative Financial Statements for the Year ended 31 December 2021 and 31 December 2021 Illustrative IFRS Disclosures – COVID Supplement  may also assist when preparing your 31 December 2021 financial statements*.

* Please note that these documents apply to full IFRS reporters, and do not contain New Zealand specific disclosures nor the Tier 2 Reduced Disclosure Regime disclosure concessions.

New standards

The table below highlights amending standards that apply for the first time to annual periods ending 31 December 2021.

Standard Standard name Applies to periods Annual periods
Amendment to NZ IFRS 16 Covid-19-Related Rent Concessions – Beginning on or after 1 June 2020

If not early adopted for 31 December 2020

Amendment to NZ IFRS 16 Covid-19-Related Rent Concessions beyond 30 June 2021 – Beginning on or after 1 April 2021 Recommend adopting early for 31 December 2021
Amendments to NZ IFRS 9, NZ IAS 39, NZ IFRS 7, NZ IFRS 4 and NZ IFRS 16 Interest Rate Benchmark Reform – Phase 2 Beginning on or after 1 January 2021
Amendment to IFRS 4 Extension of the Temporary Exemption from applying NZ IFRS 9 (insurers only) Beginning on or after 1 January 2021

(Insurers only)

We expect to see the amendments for rent concessions affecting a number of entities given the COVID-19 lockdowns experienced in 2021. This is discussed in more detail below.

Rent concessions

Many lessors granted rent concessions to lessees during this COVID-19 pandemic period, resulting in either the waiver or deferral of lease payments (or both).

Implications for lessees

The original practical expedient contained in IFRS 16, paragraph 46A, only permitted lessees to avoid having to apply modification accounting to leases where the reduction in lease payments as a result of COVID-19 rent concessions affected lease payments originally due on or before 30 June 2021. Applying the original practical expedient would have resulted in adjustments to the lease liability recognised in profit or loss rather than against the right-of-use asset, and no change to the discount rate.

After subsequent ‘waves’ of COVID-19 restrictions and lockdowns, many lessors provided rent concessions extending beyond 30 June 2021. The IASB therefore extended the practical expedient to apply to rent concessions affecting lease payments originally due on or before 30 June 2022.

Note that the extended practical expedient must be applied consistently to eligible contracts with similar contracts and in similar circumstances, regardless of whether the rent concession becomes eligible because of the original practical expedient or the extended practical expedient. Our May 2021 Accounting Alert article includes examples of when the extended practical expedient would and wouldn’t apply.

The following Accounting Alert articles provide worked examples to explain the accounting for different types of rent concessions. These could apply equally to the initial or extended practical expedient:

  • Example – Waiver of rentals (July 2020)
  • Example – Deferral of lease payments (July 2020)
  • Example – Lessee choose to pay half rental during COVID-19 period, with waiver only formally agreed by lessor at a later date (July 2020)
  • Example – Deferral of rental payments for six months and lease term extended by six months (August 2020)
  • Example - Deferral of rental payments for six months – recouped over remainder of lease with additional interest on deferred payments to compensate for time value of money (August 2020)

More information is also available in our International Financial Reporting Bulletins:

Our May 2021 Accounting Alert article, IASB extends practical expedient for COVID-19 rent concessions until 30 June 2022 and International Financial Reporting Bulletin, IFRB 2021/08 COVID-19-related rent concessions beyond 30 June 2021: Extension of practical expedient – Additional FAQs provide more information regarding the extended practical expedient.

Implications for lessors

COVID-19 rent concessions also cause headaches for landlords trying to grapple with the appropriate accounting under IFRS 16. The following Accounting News articles summarise BDO’s FAQs to assist in accounting for rent concessions within the context of existing IFRS 16 requirements.

Article Topic Title Source – Accounting Alert
1 FAQs to assist in accounting for rent concessions Implications of COVID-19 for lessors - Your questions answered August 2020
2 Amendment to BDO’s FAQ 1.2 in article 1 above How should lessors account for operating lease straight-line rentals and lease incentive assets after initial recognition? February 2021

New IFRIC agenda decisions – SAAS, supply chain financing arrangements and more

Entities should not overlook two important agenda decisions made by the IFRS Interpretations Committee over the past year that could have a material impact on your 31 December 2021 financial statements. These are:

Configuration or customisation costs in a cloud computing arrangement

Entities using cloud-based software in a Software as a Service (SaaS) arrangement may incur significant costs in relation to configuration and customisation of the supplier’s application software to which they receives access.

SaaS arrangements are usually accounted for as service contracts and not as intangible assets (refer IFRIC agenda decision – March 2019). Even though an intangible asset is not recognised in the balance sheet for the SaaS arrangement, in the past, some companies have nevertheless capitalised configuration and customisation costs relating to these arrangements as ‘intangible assets’.

For 31 December 2021 many companies may need to remove these capitalised costs from their balance sheets (i.e. expense the costs), and retrospective adjustments will be required to prior year comparative information. Given that the IFRIC agenda decision was published in April 2021, entities have had sufficient time to identify past costs that need to be expensed in 31 December 2021 financial statements.

These retrospective adjustments are treated as a change in accounting policy because the IFRIC decision is merely clarifying the accounting treatment for a transaction that was previously contentious, i.e. it is not accounted for as an error.

Refer to our May 2021 Accounting Alert article for an explanation of the April 2021 IFRIC agenda decision regarding configuration and customisation costs in a SaaS arrangement.

Supply chain financing (reverse factoring) arrangements

This December 2020 IFRIC agenda decision outlines how IFRS standards already provide guidance on the appropriate accounting classification and disclosures for reverse factoring arrangements and considers the following questions:

  • Should the reverse factoring arrangements be classified as trade payables or as borrowings in the balance sheet?
  • How should these arrangements be presented in the cash flow statement?
  • What additional disclosures are required about reverse factoring arrangements?

Refer to our May 2021 Accounting Alert article for more information.  

(For proposed upcoming changes to supply chain financing please refer to our accompanying article.)

Other IFRIC agenda decisions

Entities may also need to consider whether other IFRIC agenda decisions could affect 31 December 2021 financial statements:

Decision Accounting Alert articles & other resources
Non-refundable value added taxes on leases Non-refundable value added taxes on leases (November 2021)
BDO’s IFRS in Practice for IFRS 16 – refer Example 18
Accounting for warrants that are classified as financial liabilities on initial recognition Accounting for warrants that are classified as financial liabilities on initial recognition (November 2021)
Costs necessary to sell inventories Latest IFRIC agenda decisions – Costs necessary to sell inventories & non-going concern financial statements (July 2021)
Non-going concern financial statements Latest IFRIC agenda decisions – Costs necessary to sell inventories & non-going concern financial statements (July 2021)

If you require assistance with your year-end reporting, please contact our IFRS Advisory team or your local BDO representative.


This publication has been carefully prepared, but is general commentary only. This publication is not legal or financial advice and should not be relied upon as such. The information in this publication is subject to change at any time and therefore we give no assurance or warranty that the information is current when read. The publication cannot be relied upon to cover any specific situation and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in New Zealand to discuss these matters in the context of your particular circumstances.
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