COVID-19 has meant many lessees have been unable to fully utilise their leased assets. They’re facing financial difficulties. And as a result, we’re seeing a number of rent concessions – such as reduced rentals or payment holidays –being provided to them.
You may have read here about how accounting for COVID-19-related rent concessions for businesses applying International Accounting Standards has been simplified. But if you’re a business applying UK Accounting Standards, you’ve probably been sat there thinking, well, what about me?
The good news is there are proposals in place to make some temporary changes to UK GAAP (FRS 102) on accounting for rent.
Much-welcomed by businesses trying to make sense of a myriad of renegotiations with landlords resulting from the COVID-19 pandemic, the move looks to make it easier for lessees to account for such changes.
Where a lessee has received rent concessions as a direct consequence of the COVID-19 pandemic, such as temporary rent reductions or payment holidays, the amendment allows lessees to account for them over the period the concession is intended to compensate, reflecting the substance of the concessions and their temporary nature. This is a much simpler process than having to spread the concession over the life of the lease, which would be necessary under the current rules.
This is planned to take effect for accounting periods commencing on or after 1 January 2020, and early application will be permitted once a decision is made by the Financial Reporting Council to bring the proposed changes into effect (expected by the end of September). If you want more detail on the proposed changes, click here.
So, if you’re planning to review all your new rent arrangements and make sure they’re being accounted for correctly, you may want to hold fire until the accounting requirements are firmed up.
Sure, lease accounting can get complex
But that’s why we love it. So, if you have any questions or would like some more detail, speak to Cat Kelly, our Head of Retail, at email@example.com