Introduction
Accounting standards shape the way businesses record numbers. Among them, IFRS 16 focuses on leases. It explains how to recognize, measure, and disclose lease contracts. IFRS 16 introduces a single lessee model, where assets and liabilities are recognized unless the lease term is less than 12 months or the asset is of low value.
During the COVID-19 pandemic, many businesses faced rent concessions. The International Accounting Standards Board (IASB) made amendments to IFRS 16. These changes gave clarity on how lessees should account for concessions such as rent waivers, rent holidays, and deferrals. The update aimed to support firms struggling with unexpected financial challenges.
Issue with Rent Concessions
Lessees often received concessions from lessors during the pandemic. These came in many forms:
- Rent holidays
- Rent reductions
- One-off waivers
- Deferrals of payments
For large businesses with many lease contracts, applying IFRS 16 rules to these concessions was complex. Each contract had different features and conditions, making accounting harder. That’s why the Board provided specific guidance.
Amendments in IFRS 16
The amendment was designed to make accounting easier. It allowed lessees to handle COVID-19 rent concessions without treating them as lease modifications in every case. Instead, lessees could apply a practical solution.
The key changes include:
- Lessees can choose to apply the relief for COVID-19-related rent concessions.
- The amendment avoids complex reassessments for each contract.
- It reduces the workload for firms with large lease portfolios.
This practical approach helped businesses save time and focus on recovery.
Effective Date of Amendment
The amendment became effective for reporting periods starting on or after 1 June 2020.
Important points:
- Earlier application was permitted if statements weren’t approved before 28 May 2020.
- It could also be applied in interim financial reports.
- Firms using the amendment had to stay consistent in its application across similar contracts.
Disclosure Requirements
If a company applied the amendment, disclosure was mandatory. Lessees had to explain:
- Whether the amendment applied to all rent concessions or only some.
- The nature of contracts where relief was used.
- The effect of applying the relief on profit or loss.
This ensured transparency for investors and stakeholders. IASB chair Mr. Hans Hoogervorst said the goal was to provide relief without reducing the quality of financial information.
How Mubarak Al Ketbi (MAK) Auditing Supports Businesses
Mubarak Al Ketbi (MAK) Auditing provides expert guidance on IFRS amendments. We help businesses apply IFRS 16 correctly while staying compliant with UAE laws.
Our Services:
- Internal auditing services
- VAT and corporate tax consultancy
- Accounting and bookkeeping support
- Accounts outsourcing solutions
- CFO advisory services
- Tax consultation and planning
Our experts give practical advice during challenging times. We help clients adjust to financial changes and manage lease concessions with clarity.
What Can Help – Mubarak Al Ketbi (MAK) Auditing
At Mubarak Al Ketbi (MAK) Auditing, we support businesses with IFRS 16, VAT, and financial compliance. We provide clarity and reduce risks. Our team ensures firms remain confident when dealing with lease concessions.
- Visit us at: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Call or WhatsApp: +971 50 276 2132
