Coronavirus Prompts Changes to New Lease Accounting Rules

New lease accounting rules should be changed to make tracking rent concessions simpler for companies hit by the coronavirus crisis, and some other standards should be delayed, global standard setters decided Friday.

The International Accounting Standards Board recommended waiving a requirement for companies to recalculate lease agreements if they were allowed a break from payments during the pandemic. The IASB also voted to delay some planned changes to other accounting standards for up to a year, although it wouldn’t allow any further delays to new insurance rules being introduced in 2023, or to accounting standard changes necessitated by the introduction of new benchmark interest rates.

“The pandemic could raise some big accounting issues,” IASB Vice Chair Sue Lloyd said, although she emphasized that the recommended changes to International Financial Reporting Standard 16 Leases were a one-off, and that this sort of short-term fix wouldn’t be typical.

IFRS 16 came into effect at the start of 2019, meaning many companies are using it for the first time. The IASB voted unanimously to change the wording so that companies didn’t have to account for any changes in lease rentals during the pandemic as a new lease agreement, noting that many countries were allowing retailers in particular to miss rental payments for their shops while forced to close.

“Stakeholders have informed us that applying those requirements to a potentially large volume of Covid-19-related rent concessions could be complex—particularly in the light of the many other challenges stakeholders face during the pandemic,” an IASB staff paper on the proposals said.

Lloyd said that if the IASB decided to change IFRS 16 it needed to do so quickly. The board voted to cut down a typically months-long public comment period to two weeks with an eye to introducing the changes in May.

The IASB also voted unanimously to stick to the existing timetable for IFRS 17 insurance rules and to press ahead with accounting changes tied to replacing benchmark interest rates such as the London Interbank Offered Rate (Libor), saying that it had received feedback that these were urgently needed.

In March, the IASB agreed to delay the introduction of IFRS 17 by a year to 2023 to give insurers more time to prepare, and in April it agreed on changes to accounting standards to reflect the shift away from Libor, which should be introduced in May.

The board agreed, however, to two smaller delays because of the pandemic. Changes to the accounting treatment of current liabilities will be pushed back a year to 2023, and the feedback period for some other proposals, such as revised small company reporting rules, will be extended by three months.

To contact the reporter on this story: Michael Kapoor in London at correspondents@bloomberglaw.com