Written by: Ashley Goldsmith, Product Manager (Accounts)
As the coronavirus pandemic continues to cause worldwide disruption, the Financial Reporting Council has issued amendments to UK and Irish GAAP arising directly from the effects of Covid-19.
Rent concessions
Many lessors have provided lessees with rent concessions which essentially mean that they forego a portion of the lease payments which would otherwise have been due if that pandemic had not occurred.
The accounting treatment for these rent concessions was previously open to debate, with one argument being that the rent concessions should be spread over the remaining lease term - as lease incentives are. But the FRC’s amendments clarify that in their opinion, the concessions should be recognised in the periods that benefit from the concession.
Section 20 of FRS 102 and Section 15 of FRS 105 have been amended to state that changes in operating lease payments which are Covid-19 related are to be recognised on a systemic basis over the periods that the change in lease payments is intended to compensate.
The changes only relate to reductions in lease payments that were originally due up to 30th June 2021.
It is important to note that a rent concession differs from the situation where the lessee has been granted a rent deferral and therefore the changes in UK GAAP would not apply to deferrals.
These changes are effective for periods commencing on or after 1st January 2020, with early-adoption being permitted - providing it discloses this fact.
What has changed in CaseWare?
Our default accounting policies for Operating leases (Lessor) and (Lessee) now include an additional optional text paragraph to state that temporary rent concessions occurring as a direct consequence of the pandemic have been recognised over the periods that the change is intended to compensate.
We have also updated the Operating leases note to include a new optional table to disclose any changes in lease payments arising from Covid-19 related rent concessions for the current and prior year. We have not created a new mapping number in this regard as we consider (and hope!) that this is likely to be a short-term reporting requirement.
These changes will be incorporated into the next ePack release for our AccountsAdvanced template which will be released early January 2021.
