Page 1 of 3Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
23 May 2022Bruce MackenzieIFRS Interpretations CommitteeColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Bruce,Tentative agenda decision – Lessor Forgiveness of Lease PaymentsThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants in Hong Kong. We are grateful for the opportunityto provide you with our views on this tentative agenda decision (TAD).The HKICPA appreciates the effort of the IFRS Interpretations Committee (IFRS IC) toaddress the application of the requirements in IFRS 9 Financial Instruments and IFRS 16Leases in accounting for the lessor forgiveness of lease payments as described in thesubmission. However, the HKICPA shares similar views with our respondents that applyingthe impairment and derecognition requirements under IFRS 9 to the operating leasereceivable in the given fact pattern as the TAD suggested would only be one of theacceptable approaches, and that the application of the modification requirements underIFRS 16 should also be acceptable under the current IFRS Standards. Our comments andrecommendations are as follows.Applying the expected credit loss model (ECL) in IFRS 9 to the operating lease receivableOur respondents expressed mixed views as to whether the anticipation of forgiving leasepayments due should always be factored into the measurement of ECL of the leasereceivable regardless of any changes to the lessee’s credit risk. On the one hand, IFRS 9defines a credit loss as “the difference between all contractual cash flows that are due toan entity in accordance with the contract and all the cash flows that the entity expects toreceive (i.e. all cash shortfalls) …”. Some respondents interpreted this as a requirement toinclude all cash shortfalls in ECL measurement irrespective whether they are due to credit-related reasons or not. On the other hand, the objective and the underlying concept of theECL model in IFRS 9 (e.g. significant increase in credit risk, loss given default) is to reflectthe changes in credit risks since the initial recognition of the financial instruments (IFRS 9BC 5.82-83). This may imply that the measurement of ECL should be driven by credit-related factors. Given the above, we consider both approaches, i.e. including all cashshortfalls or only those credit-related cash shortfalls into the measurement of ECL, couldbe acceptable under the existing IFRS Standards.The HKICPA notes that lease concessions are becoming more common in recent years asa result of the global COVID-19 pandemic and/or changes in local market conditions. Leaseconcessions may or may not be offered for credit-related reasons, and these situationsmay not have been considered by the IASB when it developed IFRS 16. The HKICPAconsiders that lease concessions that are offered for commercial reasons (e.g. goodwillgesture) other than the lessee’s credit risk could be similar to price concessions in IFRS 15Page 2 of 3Revenue from Contracts with Customers, in which case price concessions to tradereceivables could be treated as a reduction of revenue instead of ECL. As explained inIFRS 15 BC 194, when the IASB developed IFRS 15, it decided not to develop detailedrequirements for differentiating between a price concession and impairment losses due tothe difficulties in determining whether the entity has explicitly offered a price concession orwhether the entity has chosen to accept the risk of default by the customer. We considerthat the same challenge would also exist in differentiating between a lease concession andimpairment losses.In light of the above, the HKICPA recommends the IASB clarify through proper standard-setting activities whether ECL measurement should cover all losses or only those relatingto a change in credit risk when the IASB carry out the post-implementation review of theimpairment requirements of IFRS 9.Applying the derecognition requirements in IFRS 9 to the operating lease receivableThe HKICPA notes that based on a literal reading of the requirements in IFRS 9, operatinglease receivables are subject to the derecognition requirements under IFRS 9. However,we consider that the forgiveness of the lease receivable is provided by the lessor to thelessee as part of a wider modification of the lease, and therefore it is also acceptable thatboth the operating lease receivables and future lease payments forgiven be accounted forholistically under IFRS 16.The HKICPA notes that the forgiven amount recognised as an operating lease receivabledoes not meet the definition of a lease incentive under IFRS 16, and IFRS 16 does notdefine accrued lease payments. However, we consider that the substance of leasereceivables forgiven could be similar to lease incentives (i.e. an incentive to enter into themodified lease), or be considered broadly as accrued lease payments under IFRS 16.87.We also share a similar concern raised by our respondents about the potential structuringopportunity under the IFRS 9 derecognition approach. For example, forgiveness of leasepayments due from the past is recognised in profit or loss immediately in the current yearbased on the derecognition requirements in IFRS 9 when this could in certain fact patternsbe clearly linked to an equal and offsetting increase in future lease payments next year.For these reasons, the HKICPA recommends the IFRS IC consider acknowledging that itis acceptable to apply either the derecognition requirements in IFRS 9 or the modificationrequirements in IFRS 16 to operating lease receivable in the finalised agenda decision. Ifthe IFRS IC were to conclude that only the IFRS 9 derecognition approach is acceptablein the given fact pattern, we recommend the IFRS IC and IASB follow the due process forstandard setting and consider publishing an Interpretation. We also suggest that the IFRSIC and IASB explain clearly why the operating lease receivables are not accrued leasepayments or provide the definition of accrued lease payments in the standard.Work undertaken by HKICPA in forming its views:
In response to this TAD, the HKICPA:
a)
issued an Invitation to Comment on the TAD to its members and other stakeholders;
b)
sought input from its Financial Instruments Advisory Panel and Leases AdvisoryPanel, which are mainly comprised of technical and industry experts from accountingfirms; andc)
developed its views through its Financial Reporting Standards Committee, whichcomprises preparer representatives from various industry sectors, regulators, as wellas technical and industry experts from small, medium and large accounting firms.Page 3 of 3If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk) or Eky Liu (eky@hkicpa.org.hk), Deputy Director of theStandard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting Department
IFRS Interpretations Committee Tentative agenda decision – Lessor Forgiveness of Lease Payments
下载原件Page 1 of 3Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
23 May 2022Bruce MackenzieIFRS Interpretations CommitteeColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Bruce,Tentative agenda decision – Lessor Forgiveness of Lease PaymentsThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants in Hong Kong. We are grateful for the opportunityto provide you with our views on this tentative agenda decision (TAD).The HKICPA appreciates the effort of the IFRS Interpretations Committee (IFRS IC) toaddress the application of the requirements in IFRS 9 Financial Instruments and IFRS 16Leases in accounting for the lessor forgiveness of lease payments as described in thesubmission. However, the HKICPA shares similar views with our respondents that applyingthe impairment and derecognition requirements under IFRS 9 to the operating leasereceivable in the given fact pattern as the TAD suggested would only be one of theacceptable approaches, and that the application of the modification requirements underIFRS 16 should also be acceptable under the current IFRS Standards. Our comments andrecommendations are as follows.Applying the expected credit loss model (ECL) in IFRS 9 to the operating lease receivableOur respondents expressed mixed views as to whether the anticipation of forgiving leasepayments due should always be factored into the measurement of ECL of the leasereceivable regardless of any changes to the lessee’s credit risk. On the one hand, IFRS 9defines a credit loss as “the difference between all contractual cash flows that are due toan entity in accordance with the contract and all the cash flows that the entity expects toreceive (i.e. all cash shortfalls) …”. Some respondents interpreted this as a requirement toinclude all cash shortfalls in ECL measurement irrespective whether they are due to credit-related reasons or not. On the other hand, the objective and the underlying concept of theECL model in IFRS 9 (e.g. significant increase in credit risk, loss given default) is to reflectthe changes in credit risks since the initial recognition of the financial instruments (IFRS 9BC 5.82-83). This may imply that the measurement of ECL should be driven by credit-related factors. Given the above, we consider both approaches, i.e. including all cashshortfalls or only those credit-related cash shortfalls into the measurement of ECL, couldbe acceptable under the existing IFRS Standards.The HKICPA notes that lease concessions are becoming more common in recent years asa result of the global COVID-19 pandemic and/or changes in local market conditions. Leaseconcessions may or may not be offered for credit-related reasons, and these situationsmay not have been considered by the IASB when it developed IFRS 16. The HKICPAconsiders that lease concessions that are offered for commercial reasons (e.g. goodwillgesture) other than the lessee’s credit risk could be similar to price concessions in IFRS 15Page 2 of 3Revenue from Contracts with Customers, in which case price concessions to tradereceivables could be treated as a reduction of revenue instead of ECL. As explained inIFRS 15 BC 194, when the IASB developed IFRS 15, it decided not to develop detailedrequirements for differentiating between a price concession and impairment losses due tothe difficulties in determining whether the entity has explicitly offered a price concession orwhether the entity has chosen to accept the risk of default by the customer. We considerthat the same challenge would also exist in differentiating between a lease concession andimpairment losses.In light of the above, the HKICPA recommends the IASB clarify through proper standard-setting activities whether ECL measurement should cover all losses or only those relatingto a change in credit risk when the IASB carry out the post-implementation review of theimpairment requirements of IFRS 9.Applying the derecognition requirements in IFRS 9 to the operating lease receivableThe HKICPA notes that based on a literal reading of the requirements in IFRS 9, operatinglease receivables are subject to the derecognition requirements under IFRS 9. However,we consider that the forgiveness of the lease receivable is provided by the lessor to thelessee as part of a wider modification of the lease, and therefore it is also acceptable thatboth the operating lease receivables and future lease payments forgiven be accounted forholistically under IFRS 16.The HKICPA notes that the forgiven amount recognised as an operating lease receivabledoes not meet the definition of a lease incentive under IFRS 16, and IFRS 16 does notdefine accrued lease payments. However, we consider that the substance of leasereceivables forgiven could be similar to lease incentives (i.e. an incentive to enter into themodified lease), or be considered broadly as accrued lease payments under IFRS 16.87.We also share a similar concern raised by our respondents about the potential structuringopportunity under the IFRS 9 derecognition approach. For example, forgiveness of leasepayments due from the past is recognised in profit or loss immediately in the current yearbased on the derecognition requirements in IFRS 9 when this could in certain fact patternsbe clearly linked to an equal and offsetting increase in future lease payments next year.For these reasons, the HKICPA recommends the IFRS IC consider acknowledging that itis acceptable to apply either the derecognition requirements in IFRS 9 or the modificationrequirements in IFRS 16 to operating lease receivable in the finalised agenda decision. Ifthe IFRS IC were to conclude that only the IFRS 9 derecognition approach is acceptablein the given fact pattern, we recommend the IFRS IC and IASB follow the due process forstandard setting and consider publishing an Interpretation. We also suggest that the IFRSIC and IASB explain clearly why the operating lease receivables are not accrued leasepayments or provide the definition of accrued lease payments in the standard.Work undertaken by HKICPA in forming its views:
In response to this TAD, the HKICPA:
a)
issued an Invitation to Comment on the TAD to its members and other stakeholders;
b)
sought input from its Financial Instruments Advisory Panel and Leases AdvisoryPanel, which are mainly comprised of technical and industry experts from accountingfirms; andc)
developed its views through its Financial Reporting Standards Committee, whichcomprises preparer representatives from various industry sectors, regulators, as wellas technical and industry experts from small, medium and large accounting firms.Page 3 of 3If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk) or Eky Liu (eky@hkicpa.org.hk), Deputy Director of theStandard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting Department