Updates to international financial reporting standards (IFRS) in Q2 2021

June 11, 2021

In May this year, the IASB issued updates to IFRS-16, with regard to rent concessions, and to IAS-12, which covers leases as part of income tax reporting.

The international financial reporting standards (IFRS) are a set of international accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They’re intended to bring transparency, make international comparisons more straightforward and give investors the information they need to make decisions.

The standards are frequently updated, as in the case of these two recent changes – but what do those amendments mean in practice?

Clarity on accounting for deferred tax on leases

On 7 May 2020, the IASB issued amendments to IAS-12, the IFRS standard on income taxes, clarifying how companies should account for deferred tax on transactions such as leases, or decommissioning obligations.

IAS-12 established how an individual company should account for income tax, including any deferred tax representing tax payable or which is later recoverable.

In certain circumstances, companies aren’t obliged to recognise deferred tax (that is, to record them in the financial statements that form the body of their accounts) the first time they recognise assets or liabilities.

In the past, whether the exemption applied to leases and decommissioning obligations, which companies recognise as both asset and liability, was something of a grey area.

This amendment removes that ambiguity, making it absolutely clear that companies are expected to recognise deferred tax on transactions of this type.

The amendments take effect for annual reporting periods beginning on or after 1 January 2023. Companies can choose to apply the amendments before that date under the principles of ‘early application’.


Extension of practical relief for COVID-19 rent concessions

On 31 March 2021 the IFRS issued ‘Covid-19-Related Rent Concessions beyond 30 June 2021’.

This amendment to IFRS-16 extends a ‘practical expedient’ (effectively an emergency measure) by a year, first announced in May 2020 as part of the global response to COVID-19.

The expedient recognised the impact of the COVID-19 pandemic on businesses. Many sought rent concessions from landlords as part of an effort to control cashflow as, for example, footfall in city centres dropped drastically due to national lockdowns.

Under the practical expedient, lessees were not required to assess whether rent concessions counted as ‘lease modifications’ for accounting purposes.

Without this amendment, the concession would have expired at the end of June 2021, while many world economies are still grappling with COVID-19 or its aftermath.

Under the terms of the recent amendment, a lessee can apply the expedient to COVID-19-related rent concessions for which a reduction in lease payments affects only payments originally due on or before 30 June 2022.

The lessee is required to apply the amendment for annual reporting periods beginning on or after 1 April 2021.

They must also apply the amendment retrospectively, with the cumulative effect of its initial application being recognised as an adjustment to the opening balance retained earnings. Disclosure requirements under paragraph 28(f)1 of IAS-8, ‘Accounting Policies, Changes in Accounting Estimates and Errors, don’t apply on this initial application.

 Contact your local Kreston audit contact (or for more information or to talk about how these changes might affect your company accounts.