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Post By: admin August 26 2020

Amendments in IFRS - 16 Leases

Before discussing what the amendments to IFRS 16 Leases are, what exactly does this IFRS relate to? Mainly, the IFRS explains how to recognize, measure and disclose leases. It provides a single lessee accounting model for all leases unless the lease term is 12 months or less or the underlying asset has a low value, requiring lessees to recognize assets and liabilities. Now during these pandemic times, we all are aware of the many changes that have taken place around us. The International Accounting Standards Board (the Board) in response to the COVID-19 coronavirus pandemic has issued amendments to IFRS 16 which specifies how lessees should account for changes in lease payments, including concessions. 

ISSUE

Rent concessions are being provided to the lessees by the lessors. These can be provided in the form of rent holidays or rent reductions. One-off rent reductions, rent waivers or deferrals of lease payments are various forms of the rent concession. For example, reductions in real estate rents are being raised by a number of retailers, and similar issues may arise in other leases. Certain requirements on accounting for lease modifications are included in the IFRS. For large portfolios of leases with different features and different types of concessions, this can be complex.

AMENDMENTS

During this challenging pandemic time, it could be complex for the lessees especially while applying IFRS 16 Leases to a potentially large volume of COVID-19 related rent concessions. The amendment in IFRS 16 has been brought with the introduction of COVID-19 related rent concessions as listed below:


Also read, Impact of Economic Substance Regulations on the Businesses in UAE

EFFECTIVE DATE

For the reporting period commencing on or after 1 June 2020, the amendment is applicable. The financial statements not yet approved/authorized on the date this amendment was issued, that is 28 May 2020 shall also be included in the earlier applications permitted. So, is this amendment available for interim reports? Yes, it is very much available and applicable for interim reports.

DISCLOSURE & CONCLUSION

The amendment is designed to make it easier for lessees, especially those with a lot of lease contracts, to account for COVID-19-related rent concessions while still providing useful information for investors.’ as stated by Mr. Hans Hoogervorst, IASB chair.

If the amendments are applied, then the entity has to disclose in the finalization of financial statements:

  • The amendment has been applied to all its rent concessions or some of them, then an explanation of the nature of the contract it has been applied to be provided.
  • As a result of applying the amendment, the difference/change in the lease payments reflects the amount of profit or loss for the reporting period.

HOW CDA CAN HELP

CDA accounting services in Dubai are tailor-made to meet the requirements of the clients and to comply with the audit laws of the UAE. We provide legitimate conclusions to your business that help to keep a better position in the competing market. 


You may also read, UAE Economic Substance Regulations

Our well established and expert consultants focus on Internal Auditing Services, VAT Consultancy Services, Accounting & Bookkeeping Services, Accounts Outsourcing Services, CFO Services and Tax Consultation in Dubai. We can support you as you navigate through accounting for the impacts of COVID-19 on your business. 

If you would like to discuss any of the points raised, please speak to our expert professionals who offer you a one-hour free consultation.