• Accounting Alert October 2020

Accounting for subsequent changes in leases after adopting the new lease standard (IFRS 16)

BDO’s IFRS Advisory department has published its most recent Cheat Sheet publication that highlights that for those for-profit entities who have adopted (or are still adopting) the new lease standard (IFRS 16) the work has very much only just begun.

This is because when certain circumstances and events occur or facts change, IFRS 16 requires entities to update and adjust their lease accounting. Items that require updating to lease accounting include:

  • Changes in the lease term due to entities revising their previous assessment as to whether they will now use (not use) renewal or termination options within the lease (Given the current COVID-19 environment, many entities may be needing to step back and undertake such revisions of previous assessments).
  • Changes to lease payments as a result of market rent reviews or inflation increase clauses (CPI).
  • Lease payments being reduced (forgiven) specifically as a result of COVID-19.
  • Lease agreements being formally amended or revised, resulting in increases or decreases to the scope of the lease (i.e. the quantum of the item(s) being leased) and/or the lease term).

For those entities managing their leases on spreadsheets, specific, manual adjustments will be required to be made to ensure that balances, amounts, and the adjustment journals required comply with IFRS 16.

Access the Subsequent changes in leases (NZ IFRS 16) Cheat Sheet.

For more on the above, please contact your local BDO representative.