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FRED 76 Draft amendments to FRS 102 and FRS 105 - COVID-19-related rent concessions

Background

As a result of the COVID-19 pandemic, many lessees have been granted rent concessions. These concessions differ in nature and depend on the arrangements agreed between the lessee and lessor. Some arrangements involve a temporary reduction in rental payments while others take the form of a rental holiday. FRS 102 and FRS 105 do not contain explicit guidance on accounting for such arrangements and the FRC understands that differing views exist on the appropriate accounting for such changes, particularly in the context of operating leases. 

FRED 76 proposes to introduce explicit requirements for accounting for temporary rent concessions for operating leases occurring as a direct consequence of the COVID-19 pandemic.  The FRED proposes amendments to Section 20 Leases of FRS 102 to require entities to recognise changes in operating lease payments that arise from COVID-19-related rent concessions over the periods that the change in lease payments is intended to compensate.  The FRC considers that this would best reflect the economic substance of the benefit of these concessions and their temporary nature and improve the consistency of reporting for users of financial statements. The proposed amendments are restricted to temporary rent concessions occurring as a direct consequence of the COVID-19 pandemic, when any reduction in lease payments affects only payments originally due on or before 30 June 2021.  These changes would apply both to FRS 102 and FRS 105 reporters.

Status of the project

FRED 76 was issued in July 2020.  It is proposed that the amendments are effective for accounting periods beginning on or after 1 January 2020, with early application permitted. Comments are requested by 1 September 2020.

Correction list for hyphenation

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