Limitations

1. The practical expedient is limited to lessees

As we analyze the ED proposal, we discover that it only offers lessees a useful work around for recording specific rent concessions relating to COVID-19 pandemic. The practical expedient is only limited to the lessee accounting. Lessor accounting is not addressed in the proposal. When we look for a broader scope, the IASB should likewise handle lessor accounting for rent concessions associated to COVID-19 issue because lessors are similarly anticipated to have significant accounting problem for COVID-19 related rent concession. It includes both practical and user-focused reasons.

A lessor must account for a lease modification to an operating lease as a new lease from the modification's effective date forward (IFRScommunity.com, 2022). Furthermore, a lessor must generally report lease payments from operating leases on a straight-line basis in accordance with IFRS 16.81. This implies that for rent concessions that are regarded as lease modifications, the lessor will recognize the decreased rent for the balance of the lease term rather than during the time that the rent reduction is granted. We think that in most situations, rent concessions made in this circumstance result in a loss for the present time.

Recognizing lower revenue during the rental concession period provides users with more pertinent information and accurately reflect the economics of the situation. We believe that lease modifications resulting from rent concession under COVID-19 are different from other lease modifications. Rent concession brought on by COVID-19 are distinct from lease modifications brought on by discussions between the lessor and lessee because they frequently result from public pressure or government encouragement. This requires for an alternative accounting treatment.

2.Wording issue that might create some misinterpretation

In our opinion, the ED should consider the correct and consistent used of words in the writing. As we go through the ED, we notice that the relief is only available for rent concession that are specifically direct from the consequences resulting from COVID-19 pandemic under paragraph 46B of the ED. However, in other parts of the ED, the words "COVID-19 related" refers from paragraph 46A and "result solely from" refers from paragraph BC5(a) are used inconsistency in another places. The use of these inconsistency terminology in the writing could lead to unexpected applicability problems by the users. Furthermore, using the phrase "direct consequence" or a phrase close to it will raise interpretive problems.

3.Phrase that create confusion

Referring to Paragraph 46B(a) says that the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change is somewhat may create confusion to the users. If we take a look to the paragraph BC5(a) of the Basis for Conclusion, it stated that the change in total lease payments could not be the sole outcome of a rent concession linked to COVID-19. We could agree with the statement as it is accurate because there might be other elements that become the basis besides the COVID-19 pandemic. However, if that is the Board's main intention in offering this amendment, it should be noticed that this is already been addressed in the introductory remarks of paragraph 46B which stated the revision should only be a "direct result of the COVID-19 pandemic"

After we read the comments of the other entities, most of it also contains the issue of the phrase of "...that is substantially the same as..." which create confusion. Considering to that situation, we concur with the other comments we've seen that this clause shouldn't be included in the ED. This is because the used of the phrase will leaves room for interpretational uncertainty concerning whether it means "substantially less than" or "just a slight bit less than." There should not be a requirement for this practical expedient approach in the first place if the change in the lease payment is not significant. They should be able to use this practical expedient approach even if the rent concession is offered for the entire year of 2020 (assuming calendar year), which could be material. Supposedly, when deciding what is substantial for a company is related to a matter of the professional's opinion.

4.Comparability Issues: The Limited Relief Period

A company's inability to compute changes during the pandemic due to logistical and volume concerns can be remedied by relief, which is a practical solution to the problem. It is not intended to provide businesses with the opportunity to change their leasing arrangements or accounting methods throughout the entire period in which businesses may experience difficulties in their operations and the economy as a direct result of COVID-19.

The limited relief period (i.e. only rent concessions in the calendar year 2020 are subject to the practical expedient) creates interpretive and comparability issues as we work through the Exposure Draft (ED) Proposal. This is because only rent concessions in the year 2020 are subject to the practical expedient. While it is certain that this will cause comparability issues with US GAAP, which does not place any restrictions on the length of its relief period, there will also be comparability issues both within and between businesses that apply IFRS and have different calendar years. For instance, a company that has its year-end on March 31 and has concessions that extend beyond the calendar year 2020 may not be able to apply the same accounting to the first three quarters (those in calendar year 2020) of their fiscal 2021 financials as they do to the last quarter of their fiscal 2021 financials. This is because the concessions will extend beyond the calendar year 2020.

REQUIRED:

(a) Suggestions or recommendations to overcome the limitations based on the discussion above (2,000 words)