Page 1 of 3Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
8 May 2020Mr Hans HoogervorstInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Hans,IASB Exposure Draft ED/2020/2Covid-19-Related Rent Concessions – Proposed amendment to IFRS 16The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,and ethics for professional accountants, in Hong Kong. We are grateful for the opportunityto provide you with our comments on this Exposure Draft (ED).The HKICPA appreciates the IASB's responsive action to address the practicalchallenges faced by lessees during the covid-19 pandemic and supports the IASB'sproposed amendment to IFRS 16 Leases. We understand the importance of issuing theamendment to IFRS 16 immediately and, therefore, acknowledge the difficulties that theIASB would have in making significant changes to the proposals at this stage.Nevertheless, we have a few suggestions to further improve the proposals and addressthe practical challenges faced by preparers.Our responses to the questions raised in the ED are set out below:
Question 1 – Practical expedientThe HKICPA agrees that the practical expedient would provide practical relief to lesseeswhile enabling them to continue providing useful information about their leases to users offinancial statements.However, we would also like to draw your attention to the following issues that are notdealt with in the ED or require clarification:
Differentiating the impact of the covid-19 pandemic from other negative eventsThe HKICPA understands that in some cases it will be practically difficult to differentiatewhether the rent concession is occurring as a direct consequence of the covid-19pandemic or is occurring due to the combination of the covid-19 pandemic and othersituations.In 2019 in Hong Kong, many lessors provided rent concessions to lessees as a result ofthe general economic downturn due to the US-China trade war and social unrest events,for example in response to shopping mall closures due to local protests. In 2020, lessorsare continuing to provide rent concessions for the compound effect of such events,together with the impact of the covid-19 pandemic, to ease the operational stress ofPage 2 of 3lessees. The proposed paragraphs 46B(a) to (c) limit the scope of the practical expedientto avoid it being applied too broadly. Nevertheless, we suggest removing the word "direct"in the proposed paragraph 46B so that the practical expedient applies to "rentconcessions occurring as a consequence of the covid-19 pandemic" to allow lessees toapply the practical expedient to rent concessions occurring as a consequence of acombination of events, including the covid-19 pandemic.Timing of lease paymentsThe HKICPA observes that it is not uncommon for lessees to prepay lease payments asrequired under the lease contract. To cater for the scenario where a lessor provides arebate for rent paid in 2019 that relates to the right to use the asset in 2020, we suggestchanging the wording in proposed paragraph 46B(b) from "payments originally due in2020" to "payments originally for/related to 2020".Lessor accountingThe HKICPA has received feedback from local stakeholders that it is important to providesimilar practical relief for lessors. We acknowledge the IASB's reasoning for notaddressing lessor accounting in paragraph BC3 of the ED. However, stakeholders havetold us that lessors also face similar difficulties to lessees in assessing whether apotentially large volume of covid-19-related rent concessions are lease modifications,particularly when they have to do this repeatedly for numerous lessees across differentjurisdictions. Some lessors may also incur significant time and effort to assess theimplications of the laws and regulations in several jurisdictions. We also consider that itmay be helpful for users of financial statements to see a consistent application for bothlessors and lessees, whereby the effect of covid-19-related rent concessions is reflectedin the current period rather than over the remaining lease term.Further guidanceWe would also like to highlight a few areas where our stakeholders have told us furtherclarification would be helpful in the final amendments:
Meaning of "substantive" in the proposed paragraph 46B(c). Stakeholders haveconcerns about how to judge whether there is a substantive change to other termsand conditions without further guidance or clarification, such as whether the changewould be considered relative to other terms and conditions of the lease. For example,considering the example in paragraph BC5(c) of the ED, would a three-monthextension to the lease term be considered substantive if the remaining lease term isshort (eg, 2 months), but not if it is long (eg, several years)?Different types of changes in lease payments. It would be helpful to move paragraphBC7 of the ED into the main body of the amendments to help to clarify the accountingtreatment for covid-19-related rent concessions when applying the practical expedient.Deferral of lease payments. It would be helpful for the IASB to clarify explicitly whetherthe time value of money should be taken into consideration in assessing whetherthere is a change in consideration for a lease.Question 2 – Effective dateThe HKICPA supports the proposed effective date, transition requirements and permittedearlier application of the amendments in view of the urgency of the relief.Page 3 of 3Other comments - Interaction of the proposals with the IASB's educational materialDuring our discussions with stakeholders, we noted the following area of confusionregarding application of IFRS 16 that has arisen as a result of the interaction of theproposed amendment to IFRS 16 and the IASB's educational material1 issued in April
2020.Timing of recognition of forgiveness/waiver of lease payments.Applying paragraph 38(b) of IFRS 16, variable lease payments not included in themeasurement of the lease liability are recognised in the period in which the event orcondition that triggers those payments occurs. We have observed diversity ininterpretation of this paragraph amongst stakeholders regarding the timing of recognitionof a forgiveness or waiver of lease payments. Some stakeholders interpret paragraph38(b) of IFRS 16 as requiring recognition in the period in which the forgiveness or waiveris agreed by the parties to the lease. However, other stakeholders interpret this paragraphas requiring recognition over the affected period, ie, over the periods in which the rent isforgiven. Stakeholders further note that the IASB's educational material refers toparagraph 3.3.1 of IFRS 9, which requires an entity to derecognise part of the leaseliability when, and only when, it is extinguished (ie, recognised in profit or lossimmediately when the rent concession is agreed). Stakeholders expressed concerns thatthe application and interaction of paragraph 38(b) of IFRS 16 and paragraph 3.3.1 ofIFRS 9 may require further clarification in the educational material to avoid diversity inpractice regarding the timing of recognition of a forgiveness or waiver of lease payments.Work undertaken by HKICPA in forming its views:
The HKICPA:
(a) issued an Invitation to Comment on the ED to our stakeholders;
(b) sought input from its Leases Advisory Panel comprising technical and industry expertsand auditors from accounting firms; and(c) developed its views through its Financial Reporting Standards Committee, havingreflected on its stakeholders' feedback. The Committee comprises academics, preparerrepresentatives from various industry sectors, investors, regulators, and technical andindustry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contact me orNorman Chan, Associate Director of the Standard Setting Department(Normanchan@hkicpa.org.hk).Yours sincerely,Michelle FisherDeputy Director, Standard Setting Department1 https://cdn.ifrs.org/-/media/feature/supporting-implementation/ifrs-16/ifrs-16-rent-concession-educational-material.pdf?la=en
IASB Exposure Draft ED/2020/2 Covid-19-Related Rent Concessions – Proposed amendment to IFRS 16
下载原件Page 1 of 3Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
8 May 2020Mr Hans HoogervorstInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Hans,IASB Exposure Draft ED/2020/2Covid-19-Related Rent Concessions – Proposed amendment to IFRS 16The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,and ethics for professional accountants, in Hong Kong. We are grateful for the opportunityto provide you with our comments on this Exposure Draft (ED).The HKICPA appreciates the IASB's responsive action to address the practicalchallenges faced by lessees during the covid-19 pandemic and supports the IASB'sproposed amendment to IFRS 16 Leases. We understand the importance of issuing theamendment to IFRS 16 immediately and, therefore, acknowledge the difficulties that theIASB would have in making significant changes to the proposals at this stage.Nevertheless, we have a few suggestions to further improve the proposals and addressthe practical challenges faced by preparers.Our responses to the questions raised in the ED are set out below:
Question 1 – Practical expedientThe HKICPA agrees that the practical expedient would provide practical relief to lesseeswhile enabling them to continue providing useful information about their leases to users offinancial statements.However, we would also like to draw your attention to the following issues that are notdealt with in the ED or require clarification:
Differentiating the impact of the covid-19 pandemic from other negative eventsThe HKICPA understands that in some cases it will be practically difficult to differentiatewhether the rent concession is occurring as a direct consequence of the covid-19pandemic or is occurring due to the combination of the covid-19 pandemic and othersituations.In 2019 in Hong Kong, many lessors provided rent concessions to lessees as a result ofthe general economic downturn due to the US-China trade war and social unrest events,for example in response to shopping mall closures due to local protests. In 2020, lessorsare continuing to provide rent concessions for the compound effect of such events,together with the impact of the covid-19 pandemic, to ease the operational stress ofPage 2 of 3lessees. The proposed paragraphs 46B(a) to (c) limit the scope of the practical expedientto avoid it being applied too broadly. Nevertheless, we suggest removing the word "direct"in the proposed paragraph 46B so that the practical expedient applies to "rentconcessions occurring as a consequence of the covid-19 pandemic" to allow lessees toapply the practical expedient to rent concessions occurring as a consequence of acombination of events, including the covid-19 pandemic.Timing of lease paymentsThe HKICPA observes that it is not uncommon for lessees to prepay lease payments asrequired under the lease contract. To cater for the scenario where a lessor provides arebate for rent paid in 2019 that relates to the right to use the asset in 2020, we suggestchanging the wording in proposed paragraph 46B(b) from "payments originally due in2020" to "payments originally for/related to 2020".Lessor accountingThe HKICPA has received feedback from local stakeholders that it is important to providesimilar practical relief for lessors. We acknowledge the IASB's reasoning for notaddressing lessor accounting in paragraph BC3 of the ED. However, stakeholders havetold us that lessors also face similar difficulties to lessees in assessing whether apotentially large volume of covid-19-related rent concessions are lease modifications,particularly when they have to do this repeatedly for numerous lessees across differentjurisdictions. Some lessors may also incur significant time and effort to assess theimplications of the laws and regulations in several jurisdictions. We also consider that itmay be helpful for users of financial statements to see a consistent application for bothlessors and lessees, whereby the effect of covid-19-related rent concessions is reflectedin the current period rather than over the remaining lease term.Further guidanceWe would also like to highlight a few areas where our stakeholders have told us furtherclarification would be helpful in the final amendments:
Meaning of "substantive" in the proposed paragraph 46B(c). Stakeholders haveconcerns about how to judge whether there is a substantive change to other termsand conditions without further guidance or clarification, such as whether the changewould be considered relative to other terms and conditions of the lease. For example,considering the example in paragraph BC5(c) of the ED, would a three-monthextension to the lease term be considered substantive if the remaining lease term isshort (eg, 2 months), but not if it is long (eg, several years)?Different types of changes in lease payments. It would be helpful to move paragraphBC7 of the ED into the main body of the amendments to help to clarify the accountingtreatment for covid-19-related rent concessions when applying the practical expedient.Deferral of lease payments. It would be helpful for the IASB to clarify explicitly whetherthe time value of money should be taken into consideration in assessing whetherthere is a change in consideration for a lease.Question 2 – Effective dateThe HKICPA supports the proposed effective date, transition requirements and permittedearlier application of the amendments in view of the urgency of the relief.Page 3 of 3Other comments - Interaction of the proposals with the IASB's educational materialDuring our discussions with stakeholders, we noted the following area of confusionregarding application of IFRS 16 that has arisen as a result of the interaction of theproposed amendment to IFRS 16 and the IASB's educational material1 issued in April
2020.Timing of recognition of forgiveness/waiver of lease payments.Applying paragraph 38(b) of IFRS 16, variable lease payments not included in themeasurement of the lease liability are recognised in the period in which the event orcondition that triggers those payments occurs. We have observed diversity ininterpretation of this paragraph amongst stakeholders regarding the timing of recognitionof a forgiveness or waiver of lease payments. Some stakeholders interpret paragraph38(b) of IFRS 16 as requiring recognition in the period in which the forgiveness or waiveris agreed by the parties to the lease. However, other stakeholders interpret this paragraphas requiring recognition over the affected period, ie, over the periods in which the rent isforgiven. Stakeholders further note that the IASB's educational material refers toparagraph 3.3.1 of IFRS 9, which requires an entity to derecognise part of the leaseliability when, and only when, it is extinguished (ie, recognised in profit or lossimmediately when the rent concession is agreed). Stakeholders expressed concerns thatthe application and interaction of paragraph 38(b) of IFRS 16 and paragraph 3.3.1 ofIFRS 9 may require further clarification in the educational material to avoid diversity inpractice regarding the timing of recognition of a forgiveness or waiver of lease payments.Work undertaken by HKICPA in forming its views:
The HKICPA:
(a) issued an Invitation to Comment on the ED to our stakeholders;
(b) sought input from its Leases Advisory Panel comprising technical and industry expertsand auditors from accounting firms; and(c) developed its views through its Financial Reporting Standards Committee, havingreflected on its stakeholders' feedback. The Committee comprises academics, preparerrepresentatives from various industry sectors, investors, regulators, and technical andindustry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contact me orNorman Chan, Associate Director of the Standard Setting Department(Normanchan@hkicpa.org.hk).Yours sincerely,Michelle FisherDeputy Director, Standard Setting Department1 https://cdn.ifrs.org/-/media/feature/supporting-implementation/ifrs-16/ifrs-16-rent-concession-educational-material.pdf?la=en