On 18 August, the FCA announced temporary relief for issuers who choose to use the amended International Reporting Standard (IFRS) 16 (COVID-19-related rent concessions – Amendment to IFRS 16) during the coronavirus (COVID-19) pandemic and its aftermath.
The amendment to IFRS 16 is effective for reporting periods beginning on or after 1 June 2020 and relates to COVID-19 rent concessions that reduce lease payments due on or before 30 June 2021.
The Accounting Regulatory Committee (ARC) voted in favour of the amendment on 2 July and on 8 July the European Commission (EC) formally transmitted the file supporting endorsement of the amendment to the European Parliament (EP) and the European Council, which has three months to object before it is otherwise adopted. However, the amendment is not yet formally adopted in line with the necessary EU endorsement procedure. In strict terms, it is therefore not available for use by any issuers required by the Transparency Directive to use EU-adopted IFRS in their annual or interim financial statements.
What does this mean for issuers?
At the present time, the FCA will permit issuers subject to its rules to use the modified IFRS 16 rather than the IFRS 16 as currently adopted by the EU.
However, this is subject to two conditions:
- Issuers must apply the accounting treatment to those transactions as foreseen in the IFRS 16 amendment; and
- Issuers must disclose their use of the amendment as issued by the International Accounting Standards Board (IASB) in the notes to the financial statements.
Which firms specifically does this apply to?
The temporary relief applies to all listed companies that:
- Are required to comply with 4.1 and 4.2 (noting exemptions under 4.4) of the FCA’s Disclosure and Transparency rules (DTR); and
- Are required to prepare their accounts in accordance with EU-adopted IFRS.
It will also apply to companies that are required to comply with the DTR via the Listing Rules (LR) (LR 9.2.6BR, LR 14.3.23R, LR 18.4.2R and 18.4.3R) and that are required to prepare their accounts in accordance with EU-adopted IFRS.
It should be noted that the FCA cannot extend this temporary relief to issuers with a Home State under the Transparency Directive that is not in the UK.
How long will this be in place?
The FCA has made clear that this policy is intended to be temporary whilst the UK faces the disruption of the COVID-19 pandemic and its aftermath.
The FCA has said that it will keep its application under review. However, the FCA intends for it to be in place until the amendment to the standard is formally adopted.
The FCA has also made clear that should the European Parliament or the European Council object to the adoption of the IFRS 16 amendment before the end of the Transition Period, then the FCA will end this temporary relief.
