For entities that have COVID-19 related lease payment changes in their 2020 reporting year:
STEP 1: Identify which leases have enforceable “No access in emergency” clauses.
STEP 2a: For those that do, treat the lease payment changes as variable lease payments.
STEP 2b: For those that do not, determine whether the amendment criteria are met for each Individual lease.
STEP 3a: If met, treat the lease payment changes as variable lease payments.
STEP 3b: If not met, re-calculate the lease liability by discounting the new lease payment stream using an updated discount rate. Record an adjustment against the lease liability, and RoU asset.
Accordingly, entities will need to revisit their existing lease accounting treatment program (whether this is being managed in (i) spreadsheets, or (ii) on dedicated lease software, and ensure it can, and does, incorporate this change in treatment (with respect to variable lease payments).
Current and potential users of BDO’s very own lease software product, BDO LEAD, can rest assured that the software has recently been updated to incorporate functionality to address COVID-19 related lease payment changes.