Ind-AS 116 amendment useful for lessees with large number of leases: ICAI

ICAI said they provide an option to lessees for relief as a practical expedient while accounting
for COVID-19-related rent concessions such as rent waiver and temporary rent reductions.

PTI, July 27, 2020, 18:57 IST

Chartered accountants' apex body ICAI on Monday said the amendment to the Ind-AS 116
would be useful for lessees having a large number of leases while accounting for COVID-19-
related rent concessions. The corporate affairs ministry has amended various Indian Accounting
Standards (Ind-AS) 1, 8, 103, 107, 109 and 116. Ind-AS is converged with the International
Financial Reporting Standards (IFRS).

Regarding amendments to Ind-AS 116, that pertains to leases, ICAI said they provide an option
to lessees for relief as a practical expedient while accounting for COVID-19-related rent
concessions such as rent waiver and temporary rent reductions.

One of the key rationale to provide a practical expedient is that the lessees could find it
challenging to assess whether a potentially large volume of COVID-19-related rent concessions
are lease modifications or not in the wake of the COVID-19 pandemic, ICAI said in a statement.
The amended Ind-AS 116 can also be applied by lessees that have not yet approved the financial
statements for the annual reporting periods beginning on or after April 1, 2019, for issue as of the
date of the notification, it added.

The notification was issued on Friday.

The Institute of Chartered Accountants of India (ICAI) President Atul Kumar Gupta said the
practical expedient option for accounting for COVID-19-related rent modification should be
useful for lessees having large number of leases.

According to ICAI, the definition of 'business' in Ind-AS 103 has been modified and that would
help entities better determine whether an acquisition made is of a business or a group of assets.
"Distinguishing between a business and a group of assets is important because an acquirer
recognises goodwill only when acquiring a business," it said.

Regarding definition of 'material', amendments have been made to Ind-AS 1 and Ind-AS 8.
The definition of material helps a company determine whether information about an item,
transaction or other event should be provided to users of financial statements. However,
companies sometimes experienced difficulties using the previous definition of material when
making materiality judgements in the preparation of financial statements.

"The amendments aim at addressing concerns about the previous definition of material and
aligned the definition used across all Ind ASs," the statement said.

There are also changes in Ind-AS 109 that pertains to financial instruments and Ind-AS 107 that
relates to disclosures about financial instruments.

"These amendments are in context of specific hedge accounting requirements in Ind-AS 109 to
provide exceptions during this period of uncertainty," ICAI said.

Interbank Offered Rates (IBORs) play an important role in global financial markets. The
Financial Stability Board's (FSB) recommendations to reform some major benchmarks led to
uncertainty about the future of some existing interest rate benchmarks, which may affect
companies' financial reporting.

FSB's recommendations were made following the global financial crisis.

"Due to uncertainties arising from the impact of the reform on the timing and amount of
designated future cash flows, some hedge accounting requirements may be affected. Due to such
uncertainties, companies could be required to discontinue hedge accounting.

"Companies may also not be able to designate new hedging relationships. Discontinuation of
hedge accounting solely due to such uncertainties would not provide useful information to users
of financial statements," ICAI said.

ICAI formulates necessary Ind-ASs or makes amendments to existing Ind-AS and recommends
to the ministry for notification under Companies Act, 2013, the statement noted.