ESMA recommends supervisory coordination on accounting for COVID-19 related rent concessions

On 21 July 2020, The European Securities and Markets Authority (ESMA) issued a public statement on the coordination of supervisory action on accounting for lease modifications.

The IASB recently issued amendments to IFRS 16, COVID-19 Related Rent Concessions, which amends the requirements for lessees in order to provide practical relief. The amendments have not yet been endorsed by the EU, and therefore, they are not yet available for reporting entities that apply IFRS as endorsed by the EU as their applicable financial reporting framework.

Concern has been raised about reporting entities that must prepared 30 June 2020 period end financial statements in accordance with EU-IFRS if the endorsement process is not completed by the time that 30 June 2020 financial statements are completed and issued.

ESMA’s public statement discusses ESMA’s position on the issue, including the following:

‘ESMA, in coordination with NCAs, expects that, provided that the European Parliament and the Council do not object to the endorsement of the IFRS 16 amendment, NCAs will not prioritise supervisory actions in relation to the application of the requirements for lease modifications contained in IFRS 16 as currently endorsed by the EU to COVID-19-related rent concessions that would otherwise fall within the scope of the IFRS 16 amendment. This coordination of supervisory action would exceptionally apply to financial periods ending on or before 31 July 2020 and as long as issuers apply to those transactions the accounting treatment foreseen in the IFRS 16 amendment. Where issuers apply the IFRS 16 amendment, ESMA and NCAs expect issuers to disclose compliance with this amendment as issued by the IASB in the notes to the financial statements.’

The public statement may be accessed here.