Mazars’ newsletter on accounting standards

2021 opens with a relatively stable IFRS framework in which to prepare the consolidated financial statements for this financial year, given the limited number and scope of the standards coming into force on 1 January.

Nevertheless, the IASB continues to maintain existing standards, while also conducting standard-setting and research activities, as evidenced by the three projects presented in this edition: the possible extension of the period covered by the IFRS 16 amendment on COVID-19-related rent concessions, the publication of an exposure draft on the recognition of regulatory assets and liabilities, and the issue of a discussion paper on business combinations under common control.

IFRS highlights

Supplementary IASB meeting on COVID-19-related rent concessions

The IASB has announced a supplementary meeting on 4 February to discuss the IFRS 16 amendment on COVID-19-related rent concessions.

This amendment, published by the IASB on 28 May 2020 gives lessees, and only lessees, the option to elect not to assess whether a COVID-19-related rent concession is a lease modification. Thus, the lessee would recognise the impact of the rent concession in profit or loss for the period.

Readers will recall that the exemption applies to rent concessions granted as a direct consequence of the COVID-19 pandemic that fulfil all the following conditions:

  • the change results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;
  • the rents must have been originally due no later than 30 June 2021;
  • there is no substantive change to other terms and conditions of the lease.

The meeting, to be held in early February, will discuss whether to extend the practical relief period provided in the amendment, in light of the longer than expected crisis.

It may therefore be decided to extend the period covered by the amendment until 31 December 2021, or even 30 June 2022 (as suggested by the IASB staff). However, this would not be without some practical application difficulties, in particular because of the retroactive effect of the proposals envisaged. Rent concessions initially excluded from the scope of the amendment, applying to consideration due after 30 June 2021, may in future fall within the scope of the amendment.

At the close of this meeting, the IASB may decide to publish an exposure draft with a reduced 14-day comment period, in order to publish a definitive amendment by the end of March 2021.

Publication of an exposure draft on accounting for regulatory assets and liabilities

On 28 January, the IASB published an exposure draft entitled Regulatory Assets and Regulatory Liabilities.

Historically, certain business sectors - the energy sector, for example - have been subject to regulation by government or administrative authorities.

These administrative authorities may:

  • determine the prices that companies are entitled to charge customers for goods or services supplied, and
  • decide when these rates apply.

This may have a significant impact on companies engaged in regulated activities, in terms of the amounts to be accounted for as revenue and the timing of their recognition.

Hitherto international accounting standards have provided no specific approach for the recognition of regulatory activities.

The IASB is now proposing an accounting model in which any entity within the scope of this new standard would recognise regulatory assets and liabilities in its statement of financial position.

This model rests on the principle that an entity should reflect the total allowed compensation for goods or services supplied in a given period (i.e. taking the effects of regulation into account in order to make the necessary adjustments).

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IFRS Newsletter No. 01-2021