Accounting roundup: IASB clears COVID-19 lease amendment

The International Accounting Standards Board has cleared an amendment to its lease accounting standard, International Financial Reporting Standard 16, that it says will ease the burden on lessees during the COVID-19 pandemic.

Under the terms of the quick-fix amendment, which will apply to lease payments made up until 30 June 2021 and was issued today, lessees do not need to reassess their leasing contracts for accounting purposes – a potentially time-consuming and costly process – where a lessor varies lease payments to take account of the pandemic.

The IASB published an exposure draft setting out the proposals on a shortened two-week comment period on 24 April. 

The board also decided during the 15 May meeting to take no further action in relation to lessor accounting.

IFRS 16 requires lessees to assess each lease at inception in order to identify and recognise a separate lease liability and so-called right-of-use asset. The standard also tells lessors that they must effectively repeat this process where the terms of the lease contract change.

With the onset of the COVID-19 pandemic, a number of lessees have negotiated reductions in their lease payments – potentially triggering a reassessment of their leases.

The IASB amendment now means that they will be able to ignore lease payment forbearance where it is linked to COVID-19, subject to certain disclosures about the profit or loss effect. 

Reactions to the proposal were mixed in the comment letters submitted to the board, some 15 of which arrived after the end of the 14-day curtailed comment period. 

The CFA Institute noted that the nuances and potential implications of the proposed amendment were “[t]oo many to fully, robustly consider and evaluate in the two-week exposure period.”

The group went on to remind the board that investors need to be able to understand the cash effect of the rent concessions. 

Another investor group, the Corporate Reporting Users Forum, however, broadly endorsed the changes. 

FRC chair departure news disappoints

The UK’s Financial Reporting Council (FRC) has announced that its recently appointed chairman, Simon Dingemans, is to step down from his role after serving just seven months in the role.

The department for business, energy and industrial strategy is to begin the search for a successor, the audit watchdog said in a statement.

According to the statement, it “had not proved possible” for Dingemans to manage potential conflicts of interest arising between the part-time role of FRC chairman and other appointments in the private sector that he was keen to pursue.

“Surely the key thing was appointing someone with the passion and commitment to make the position their major job and forgo other job offers if there were a conflict?”

Sharon Bowles, former MEP and ECON chair

Sharon Bowles, former MEP and chair of the European Parliament’s economic and monetary affairs committee, told IPE: “This is really disappointing news. 

“The remit was to lead the FRC out of the disaster it had become. Surely the key thing was appointing someone with the passion and commitment to make the position their major job and forgo other job offers if there were a conflict?”

Bowles, who herself applied unsuccessfully for the role last year, added that it was important for the public to understand fully the details of the compromise reached over potential conflicts of interest. 

She added: “Meanwhile, this is another setback for the FRC that raises serious questions about the quality of the appointment process.”

ESMA cautions over COVID-19 P&L presentation  

Separately, the European Securities and Markets Authority has issued a public statement addressing a number of issues relevant to half-yearly interim financial reporting during the COVID-19 outbreak.

In a bulletin, the watchdog notes in particular that disclosures that would normally apply to full year-end accounts could also provide useful information to users of accounts in upcoming interim financial statements in light of the pandemic.

It also reminds issuers of the importance of providing financial information under the Market Abuse Regulation on a timely basis – despite current difficulties.

Further, the ESMA bulletin calls for “caution” in the presentation of COVID-19 related items in the profit or loss account. 

ESMA notes such presentation “may not faithfully present issuers’ overall financial performance, position and/or cash-flows, thus being to the detriment of users’ understanding of the financial statements”.

Investors have recently complained that the so-called EBITDAC – Earnings before interest, taxes, depreciation, amortisation, and coronavirus – performance measure amounts to massaging financial results because it adds back in the economic impact of the pandemic.

In an updated guidance document on so-called alternative performance measures, the UK FRC notes that such measures “are likely to be highly subjective and, therefore, potentially unreliable.”

‘Integrated reporting’ council launches consultation

Finally, the Integrated Reporting Council has launched a 90-day public consultation on an update to its Integrated Reporting Framework. 

The IIRC framework, unlike a financial reporting model, sets out to capture how a business manages six so-called capitals for success, which it has identified as financial, manufactured, intellectual, human, social, and natural capital. 

As such, its supporters say its remit is wider than any model focused more or less on a single metric such as the Carbon Disclosure Project or the Sustainability Accounting Standards Board model.

The exposure draft is open for comment until 19 August.

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