Lease Modifications in Covid-19 Time and IFRS16

The IASB is about to take measures under Covid-19 to allow various (temporary) adjustments/exemptions to its standards.

One of these is how to deal with modifications to lease contracts (lease modifications), in particular the insertion of a payment break and thereby extending the original term.

The adjustments/exemptions are presented in a so-called Exposure Draft, to which the public can respond. This time with an ultra-short response time of 14 days. The publication of the ED is scheduled for 27 April 2020.


Leases and Covid-19

The Board tentatively decided to:

  • provide lessees with an optional exemption from assessing whether a covid-19-related rent concession is a lease modification;
  • require lessees that apply the exemption to account for covid-19-related rent concessions as if such concessions were not lease modifications;
  • require lessees that apply the exemption to disclose that fact;
  • require lessees to apply the exemption retrospectively, recognising the cumulative effect of initially applying the amendment as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the reporting period in which a lessee first applies the amendment;
  • make the exemption immediately effective on issue of the final amendment; and
  • allow 14 days for comment on an exposure draft of the proposed amendment to IFRS 16, subject to approval from the Trustees of the IFRS Foundation