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FRC issues statement on application of Accounting for Lease Modifications (Amendment to IFRS 16 - Covid-19-Related Rent Concessions)

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24 Aug 2020

The Financial Reporting Council (FRC) has confirmed it will not pursue regulatory action in the Accounting for Lease Modifications (Amendment to IFRS 16 – Covid-19-Related Rent Concessions) before adoption by the EU.

In May 2020, the International Accounting Standards Board (IASB) published 'Covid-19-Related Rent Concessions (Amendment to IFRS 16)' which provides practical reliefs for preparers accounting for Covid-19-related rent concessions.

This amendment is effective for annual reporting periods beginning on or after 1 June 2020, but may also be applied early; however, the amendment is still subject to EU endorsement, which is expected to complete during Autumn 2020, and EU law is still applicable in the United Kingdom during the transition period following EU exit.   

Both the European Securities and Markets Authority (ESMA) (per statement on 21 July 2020) and the Financial Conduct Authority (FCA) (per statement on 18 August 2020) have also confirmed that they will not ‘prioritise supervision action’ relating to issuers’ decisions on whether or not to apply the reliefs that the amendment provides for, noting that where issuers’ use the reliefs, they will diverge from IFRS 16 as currently endorsed by the EU.

The FRC will similarly not pursue regulatory action against companies taking advantage of the reliefs permitted by the amendment.  The reliefs apply for both annual and interim accounts. If companies use the reliefs permitted by the IFRS 16 amendment, they are expected to disclose this in the notes to their financial statements. 

The FRC reminds directors of the need to ensure that the impact of applying this amendment, prior to EU adoption, on the lawfulness of any distributions is carefully considered. It also expects auditors to comply with all their obligations, for example, any requirement to report under s837 of the Companies Act 2006.

Click here for the press release on the FRC website.

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