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12/05/2020 - EFRAG's Final Comment Letter on the IASB's Exposure Draft ED/2020/2 Covid-19-Related Rent Concessions (Proposed amendment to IFRS 16)

​EFRAG has published its Final Comment Letter in response to the IASB's Exposure Draft ED/2020/2 Covid-19-Related Rent Concessions (Proposed amendment to IFRS 16). The Final Comment Letter is available here.

​On 24 April 2020, the IASB issued the Exposure Draft ED/2020/2 Covid-19-Related Rent Concessions (Proposed amendment to IFRS 16) ('the ED').

In its Final Comment Letter, EFRAG agrees with the proposals in the ED. EFRAG agrees with the need to provide relief for lessees given the challenges they face in assessing whether lease modifications have occurred under the circumstances of covid-19 and taking account of the initial overall challenges of implementing IFRS 16 Leases requirements.

However, EFRAG would support expanding the scope of the amendment to include all rent concessions granted during 2020 and not just payments due in 2020.

In order not to delay the amendments for lessees, EFRAG suggests that the IASB, as part of a separate project, consider lessor accounting for covid-19-related concessions. Like lessees, lessors also face complexity in assessing the accounting implications of covid-19-related rent concessions in particular, whether rent concessions should be treated as a modification or as a reduction in rent payments.

EFRAG suggests that paragraph 46B of the ED should be updated to incorporate the requirement currently in paragraph BC4 that the practical expedient has to be applied consistently to contracts with similar characteristics and in similar circumstances. In addition, the IASB should clarify whether the amendment ought to be applied to covid-19-related rent concessions on a case-by-case basis or on a portfolio by portfolio basis.

EFRAG agrees with the requirement for entities to disclose the fact that the proposed amendment has been applied. To enable users to assess the impact of entities applying the amendment, EFRAG considers that, subject to practicability, the IASB should add a specific requirement to disclose the following in respect of the amendment: nature and extent of rent concessions for which the option has been applied, the financial statement line items affected and the amount recognised in financial statements.

Finally, EFRAG notes that there is need for further clarity in the language applied in respect of the applicability of amendment to interim financial statements. The same applies on the timing of profit or loss effects of concessions that are forgiveness or reduction of rental payments. The text should be in the main standard and not only in the Basis of Conclusion.

The Final Comment Letter is available here.