The staff asked whether the IFRS IC members agree with their preliminary views on the following two proposed amendments to IFRS Accounting Standards and to include them in the next Annual Improvements Cycle. If not, they asked whether IFRS IC members have other suggestions on them.

Lessee accounting for lease payments forgiven (IFRS 9 Financial Instruments and IFRS 16 Leases): Initial consideration (Agenda Paper 6A)

In its March 2022 meeting, the IFRS IC discussed lessee accounting for the rent concession and agreed that the IASB consider a narrow-scope standard-setting project to clarify the lessee's accounting in applying IFRS 16 and IFRS 9 to get to the conclusion in the Agenda Decision Lessor Forgiveness of Lease Payments (IFRS 9 and IFRS 16) published in October 2022.  

Firstly, the IFRS IC agreed in its March 2022 meeting to amend the definition of "lease modification" to exclude from that definition, for a lessee, a change that solely results in a lease liability (or a part of it) being extinguished in accordance with IFRS 9. The staff continued to recommend this proposed amendment.

Secondly, some IFRS IC members suggested amending Illustrative Example 19 of IFRS 16, which describes the lessee accounting for a decrease in lease consideration as a lease modification applying IFRS 16 because it may contradict with the conclusion in the agenda decision where the lease liabilities are derecognised. The staff explained that the scenario in Illustrative Example 19 is different from that of the fact pattern in the agenda decision because the lessee has not discharged that liability by paying the lessor, and therefore the criteria in IFRS 9:B3.3.1(a) has not been met. After the proposed amendments to the definition of a lease modification as described above, the change in lease consideration illustrated in that example would continue to be a lease modification. Therefore, the staff did not recommend making such amendments.  

Thirdly, IFRS IC members noted that IFRS 9:2.1(b)(ii) states that lease liabilities recognised by a lessee are subject to the derecognition requirements in of IFRS 9:3.3.1. They said that a lessee could make a corresponding adjustment to profit or loss applying IFRS 9:3.3.3. However, the current IFRS 9:2.1(b)(ii) does not refer to IFRS 9:3.3.3 which may result in misinterpretation that the corresponding adjustment could be made to the right-of-use asset applying IFRS 16. The staff therefore recommend amending IFRS 9:2.1(b)(ii) by a cross-reference to IFRS 9:3.3.3 to clarify the corresponding adjustment is required to be recognised in profit or loss when accounting for an extinguishment of a lease liability.

IFRS IC discussion

Most IFRS IC members were of the view that the proposed amendments go beyond an Annual Improvement project and require broader consideration. They considered the proposed amendments amend the definition of modification of IFRS 16 which would require fundamental rethinking of the definition. They said it is unclear what "a change" means and that this could be interpreted as more than a change in scope, term and price. This may result in structuring opportunity to drive different accounting treatments. Most of the IFRS IC members did not consider the proposed amendments could help draw a dividing line between extinguishment under IFRS 9 and modification under IFRS 16, instead, they considered it would bring more confusion. Some of them could not distinguish why the scenario in Illustrative Example 19 of IFRS 16 meets the definition of modification while that in the agenda decision Lessor Forgiveness of Lease Payments is in the derecognition scope of IFRS 9.

Only few IFRS IC members agreed with the proposed amendments and considered that they could help distinguishing when to apply IFRS 9 (when the lease payments related past service) and when to apply IFRS 16 (for future lease service not yet performed). Moreover, they were of the view that Illustrative Example 19 merely illustrates the accounting treatment as result of the modification instead of trying to distinguish whether that fact pattern is a modification or not.

Disclosure of deferred difference between fair value and transaction price—Guidance on implementing IFRS 7: Initial consideration (Agenda Paper 6B)

The IFRS IC has been informed about an inconsistency between IFRS 7:28 and IG14 in the Guidance on implementing IFRS 7. Upon the issuance of IFRS 13 in May 2011, the IASB made consequential amendments to IFRS 7:28 to reflect the requirements in IFRS 9:B5.1.2A(b) (previously AG76 of IAS 39) that an entity should defer a difference between the fair value at initial recognition of a financial instrument and its transaction price if the fair value is not evidenced by a quoted price in an active market or based on a valuation technique that uses only data from observable markets. However, no corresponding amendments were made to IFRS 7:IG14, which illustrates some of the disclosure requirements in IFRS 7:28. The staff therefore proposed that the IASB amends IG14 of IFRS 7 to make it consistent with that in IFRS 7:28.

IFRS IC discussion

Only a few IFRS IC members commented on this item and they agreed with the proposed amendments.