Amendments to IFRS 16 Proposed by IASB for Lessees as a Result of COVID-19

As a result of the COVID-19 pandemic, changes are being made to lease agreements, for example, lessors providing lease concessions such as ‘rent holidays’ to lessees.

Many types of lease concessions provided to lessees as a result of COVID-19 would meet the definition of a lease modification, which require lessees to remeasure the lease liability based on the revised cash flows using a revised discount rate.

While this requirement is not typically onerous, it becomes challenging to apply for lessees with potentially hundreds or thousands of leases, especially when entities are experiencing significant other operational disruptions due to the effects of COVID-19.

In addition, lessees are also required to assess whether each change to a lease contract meets the definition of a lease modification, which adds another layer of complexity.

As a result of these operational issues, the International Accounting Standards Board (IASB) is proposing narrow-scope amendments to IFRS 16 to offer relief to lessees in accounting for lease modifications that arise as a direct result of COVID-19.

The proposed amendments are to:

(a) provide lessees with an exemption from the requirement to determine whether a COVID-19- related rent concession is a lease modification;

(b) require lessees that apply the exemption to account for COVID-19-related rent concessions as if they were not lease modifications;

(c) require lessees that apply the exemption to disclose that fact; and

(d) require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require them to restate prior period figures. Instead, a lessee would recognise any difference arising on initial application of the amendment in opening retained earnings (or other component of equity, as appropriate) in the annual reporting period that includes the date of initial application.

This relief would be available only to rent concessions occurring as a direct consequence of the COVID-19 pandemic and only if all of the following conditions are met:

(a) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;

(b) any reduction in lease payments affects only payments originally due in 2020 (a rent concession would meet this condition if it results in reduced lease payments only in 2020 and increased lease payments in 2020 or periods thereafter); and

(c) there is no substantive change to other terms and conditions of the lease.


For more information please read our International Financial Reporting Bulletin for more information.

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