ICAI proposes to continue relaxation on lease accounting

K.R.Srivats New Delhi | Updated on April 12, 2021

Lease modification requires re-computation of lease liability using discount rate   -

Move will bring respite to airlines, multiplexes, hotels

With Covid-19 continuing to wreak havoc on the Indian economy, the CA Institute proposed to extend by one year the validity of an existing pandemic induced accounting relief on ‘leases’, bringing some respite especially for players in airlines, retail, multiplexes, hotel and telecom sectors.

If and when approved, the lessees can account for the rent concessions (rent holiday, rent reductions) that they may receive from lessors during the pandemic as if they are not lease modifications for another one year from June 30, say accounting experts. The ICAI—which had issued an exposure draft for the proposed change in Ind AS 116 (leases) that became mandatory from April 1, 2019—is now following the International Accounting Standards Board. The original accounting relief was extended last year soon after the pandemic.

‘Lease modification’

Lease modification, which is a complex exercise, requires re-computation of lease liability using discount rate on the date of modification. This would have posed significant challenge to company whose volume of leases are high. Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS), EY India said, “The proposed relaxation will enable lessees to account for any reduction in rental costs immediately in the profit and loss account, and will help reflect the economic costs during the pandemic.”

Ashok Haldia, former Secretary, ICAI said that Covid-19 caused terrible impact on aircraft leasing business, associated risk allocation and led to rent concessions. He highlighted that the Ind AS 116 gave option for accounting for existing leases based on the criteria of “practical expedient”.

“This was allowed for lease concessions for which payment was originally due on or before June 30, 2021. The exposure draft now is to extend this timeline by a year,” Haldia said.

It may be recalled that the International Accounting Standards Board (IASB) had on May 28 last year brought amendment to the IFRS 16 ( Leases) to provide relief to lessees from applying IFRS16 guidance on lease modification accounting for rent concessions arising as a consequence of the pandemic. A similar relief was granted under Ind AS 116 last year.

Published on April 12, 2021

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