The proposed amendment aims at clarifying how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 Leases to the lease liability that arises in a sale and leaseback transaction.

EFRAG considers that the ED provides evidence of a broader conflict of principles in IFRS 16 regarding the accounting for sale and leaseback transactions and the definition of lease payments.  It encourages the IASB to consider the matter more broadly possibly as part of the future post-implementation review of IFRS 16 or the IASB's project on Variable and Contingent Consideration. 

EFRAG notes that there are complexities and operational challenges associated with the proposals in the ED, in particular regarding the level of judgement involved in estimating the future variable payments. 

As this area is not addressed in IFRS 16, EFRAG can accept a temporary solution prior to a more holistic review of the matter.  However, it encourages the IASB to consider a simplified solution by recognising the profit attributable to the retained interest in the right-of-use asset as a non-lease liability or deferred income rather than a lease liability.  EFRAG indicates that this would avoid introducing the use of two different definitions for lease payments depending on whether leases are entered into directly or via a leaseback. 

EFRAG suggests that a further simplification for sale and leaseback transactions with variable payments only could be considered by the IASB and suggests a possible approach for subsequent measurement that the IASB could additionally explore.  Finally EFRAG supports the proposed transition requirements and in particular the retrospective application of the proposed amendments, unless in circumstances where such retrospective application cannot be done without the use of hindsight.