No facet of personal or working life has been left untouched by the global response to the Covid-19 pandemic. In unprecedented times, adjusting to new accounting standards might easily fall down the list of priorities for companies battling short-term pressures. Most would expect those setting the standards to respond slowly to stakeholders’ rapidly changing needs. Thankfully, there are exceptions to this rule. The International Accounting Standards Board (IASB), which develops and publishes the IFRS Standards, has responded swiftly and decisively to address the impact of the global pandemic response on IFRS 16, which changes the way many companies recognise, measure, present and disclose leases. Most leases must now be brought on to the balance sheet, but Covid-19 has instigated many changes to rent and lease arrangements, which has left lessees uncertain about how to account for them.

“Before lockdown, the implementation of IFRS 16 was well under way,” says Sue Lloyd, vice-chair of the IASB. “We had good disclosures coming out explaining the changes in accounting to the market. That took a lot of work.

“IFRS 16 brings in a combination of changes to lease contracts and when Covid-19 hit, we had a relatively new standard that people were trying to implement. They had to suddenly stop and take account of new arrangements for rent and lease payments caused by the pandemic. For some companies, that meant looking at hundreds or thousands of contracts that could be affected.”

Push protection for lessees

The IASB published ‘IFRS 16 Leases’ in 2016, with the standard coming into effect from January 2019. The standard requires lessees to recognise nearly all leases on the balance sheet. For many, leasing is a core part of their business strategy, as it enables them to use property and equipment without a sudden, large impact on cash flow, while giving them flexibility in terms of their use of physical assets.

Before IFRS 16, leases were largely accounted for as operating costs or finance leases, meaning most remained off-balance sheet. While there are exceptions for small-ticket items, the new standard brought about significant change to financial reporting processes for any company using leases for big-ticket items such as cars, offices, retail premises, aircraft and more.

The leasing of premises and the payment of rent is a key factor that companies had to bring on-balance sheet, but the response to Covid-19 has greatly impacted rent arrangements in many countries.

In many places, rent concessions have been granted to lessees in a number of different forms. In some cases, payment holidays have been introduced, while in others there have been arrangements for the deferral of lease payments.

“We had to respond at lightning speed compared with the usual pace at which standard-setters work,” remarks Lloyd. “Fortunately, we always have a lot of communication with the market because we need to understand what questions people have. We need to know if we need to talk to regulators or auditors to ensure consistent application of the regulations.

“We communicate with them and accounting standards boards around the world because these are global standards that we are introducing. We showed people that we were listening when they came to us with questions about lease contracts. We used our intelligence network to devise the necessary changes.”

In May 2020, the IASB published an amendment to IFRS 16, which provided what it describes as ‘an optional practical expedient for lessees’, allowing them to assess whether a rent concession related to Covid-19 is a lease modification. So, lessees can elect to account for such rent concessions in the same way as they would if they were not lease modifications. In many cases, this will result in the concession being accounted for as variable lease payments in the period in which the event or condition that triggers the reduced payment occurs. As lessees can elect to account for rent concessions in the same way they would if they were not lease modifications, this will, in many cases, result in accounting for the concession as a variable lease payment. “We were able to get out quickly and provide an approach that was well received,” Lloyd notes. “We were helped by the fact that it was quite a specific issue that we could home in on – instances where people were given a deferred or permanent payment holiday – so we could clearly explain what instances related to Covid-19 it applies to. Our response could be focused and targeted.

“Also, we benefitted from existing IFRS 16 accounting requirements. For instance, if there is a change to a lease but not a lease modification, then the requirements are clear. The reduction in rent can be reflected in the profit and loss straight away as the economic benefit of not paying rent. We didn’t need to publish a new standard and we didn’t need to say how to do the accounting, we just needed to point people to the relevant paragraph.”


Days the IASB default consultation period has been during the coronavirus crisis. Usually it is 120 days, and 30 in an emergency.


“We had to respond at lightning speed compared with the usual pace at which standard-setters work. Fortunately, we always have a lot of communication with the market because we need to understand what questions people have.”

Engagement in action

The quick response from the IASB, along with the fact that the standards did not need to be substantially overhauled to deal with a predicament that none could have foreseen, show that IFRS 16 was well formulated in the first place. Nevertheless, the need to consult with stakeholders at a time of changing priorities could have presented a hurdle to the IASB’s speedy response.

The organisation itself may have been able to operate effectively, but the companies implementing IFRS16 may not have been as fortunate.

“In a way, IFRS itself has not been disrupted that much, as everything can be done remotely,” says Lloyd. “We have been able to draft and review documents and we are still publishing amendments. We have a commitment to transparency here, so our board meetings are public and we have been able to continue that by having a live webcast of the meeting.

“There has been an impact on our responsiveness to stakeholders, mainly because the uncertainty created by the pandemic means that responding to our consultations is less of a priority for them,” she adds. “That means we have to give them some breathing room. Many of them are in survival mode. So, we focused on urgent needs such as IFRS 16 and the changes that are happening to IBOR. Some other consultations have been deferred.”

Nevertheless, IFRS never makes any changes to a standard without providing the opportunity for people to express their agreement. So, formulating the response to rent concessions required an expedited consultation process under very challenging circumstances. “It is unusual to change a standard so quickly,” says Lloyd. “Our default consultation period is 120 days. In an emergency it is 30 days. This time it was 14 days. In that time, we got 110 comment letters and talked to some investors who were keen that the relief would not apply forever. People talked to us and gave us their feedback, and that is greatly to their credit.”

“There has been an impact on our responsiveness to stakeholders, mainly because the uncertainty created by the pandemic means that responding to our consultations is less of a priority for them.”

“All we needed to get was an agreement that we had applied the changes to the right population of contracts and it proved to be a popular change to accounting. People thought it was a good idea before we even put pen to paper. We even received compliments on the changes we made.”

Communication is king

From the amendments made to IFRS 16 it is clear that the focus was on lessees rather than lessors. Lloyd recognises that lessors also face challenges, but is keen to point out that a response to the implications of the pandemic had to be rapid and specifically targeted.

“There is no change to lessor accounting but we focused on lessees because the accounting process is not symmetrical,” she explains. “For lessees, all of the changes are on the balance sheet, which is not the case for lessors. Except in the case of finance leases, lessors put leases in the notes on their financial statements. The vast majority of their leases are still off-balance sheet.”

What is also clear from the IASB’s response is the effectiveness of its communication processes and the willingness of stakeholders to engage with its process of standard setting, even in the most difficult circumstances. One example of how the IASB listened to feedback is the decision it took about the end date for the application of relief. Initially, the end of 2020 was chosen but stakeholders were quick to point out that, for some, that might be too early. Some changes to lease payments are likely to be affected until June 2021, which is currently the deadline for relief to end.

“The process shows the good relationship between the IASB and those who implement the standards,” remarks Lloyd. “Though it is important to provide stakeholders with the opportunity to comment on any changes, we were still able to move quickly and provide the relief that they needed.”