Revised Accounting Standards Relief for Commercial RE

The government has revised the Indian accounting standards to reflect the true and accurate impact of Covid-19 on companies’ financials and align them with the International Financial Reporting Standards. This will directly benefit retail chains that have leased malls, warehousing companies leasing cold storage and godowns and other commercial spaces that have significant lease obligations owing to commercial properties and assets taken on hire. The most significant change relates to Ind AS-116, which sets out the principles for recognition, measurement and disclosures relating to commercial lease in financial statements. Ind AS-116 covers commercial leases, sub leases as well as agreement for right to use an asset. Any material change in lease parameters requires a corresponding change in the balance sheet and accounts of the company. A concession granted by the landlord results in a ‘lease modification’. This requires necessary adjustments in tenant’s accounts as per the applicable accounting standards.This accounting relief needs to be accompanied by two additional disclosures. One, the company must disclose profit or loss arising from the change and state whether the standard has been applied to some or all rent concessions. Two, businesses can retrospectively apply the standard from April 1 last year if their financials have not been finalised. The accounting relief is only for those concessions which are a direct consequence of the Covid-19 pandemic. As such, every reduction or deferral cannot be treated as a lease concession by companies unless it fulfils this condition. This will directly benefit companies in the aviation, telecom, retail, healthcare, logistics, warehousing and similar sectors that have significant lease obligations owing to commercial properties and assets taken on hire.