week 6 assignment
Stephaniearpi
Week6Assignmentexample2.docxRunning Head: CHANGES IN FASB AND IFRS STANDARDS 1
CHANGES IN FASB AND IFRS STANDARDS 2
Changes in FASB and IFRS Standards due to COVID-19
By a student
ACCT 601 – Accounting Capstone – 10730
DeVry University/Keller School of Management
Abstract
The COVID-19 pandemic has affected all aspects of daily life, from regular day-to-day activities to activities in the business and accounting world. Many firms and professionals have had to adjust in one way or another to fulfill their duties. The pandemic greatly impacted the Insurance and Leasing sectors. Due to the impacts, the IASB and FASB issued amendments to standards regarding leases and insurance, respectively. This paper takes a look at the original standards and the updates made to them.
Introduction
The COVID-19 pandemic has affected all aspects of daily life, from regular day-to-day activities to activities in the business and accounting world. Many firms and professionals have had to adjust in one way or another to fulfill their duties. The pandemic greatly impacted the Insurance Sector. According to a Deloitte report, the impact on general insurers will vary depending on the products and types of coverage offered by the insurers (Lehane, 2020). The pandemic has taken a toll on new premiums on specific lines of business, such as travel, events, and trade credit insurance, and losses from these lines of business may become significant. The Leasing Sector was also impacted. Globally, leasing companies have experienced significantly reduced consumer traffic in retail stores and shopping areas or indefinite closures due to quarantine measures and other government directives (Chakchouk, 2021). Due to all these changes, the IASB and FASB issued amendments to accounting standards regarding leases and insurance, respectively.
IFRS Amendments – IFRS 16
Like modifications made to shift the FASB Updates effective dates back by a year, the IASB made amendments to IFRS 16 to aid those affected by the pandemic. Firstly, IFRS 16 was issued in January of 2016. The objective of IFRS 16 is to report information that:
a. Faithfully represents lease transactions
b. Provides a basis for users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
This required a lessee should recognize assets and liabilities arising from a lease for all leases with a term of more than 12 months unless the underlying asset is of low value (IASB, 2016, IFRS 16). In addition, the standard required a lessee to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments (IASB, 2016, IFRS 16).
As a result of the COVID-19 pandemic, many lessors provided rent concessions to lessees, which could be complex, mainly when IFRS 16 was applied to pandemic-related rent concessions (IASB, 2020, IFRS 16 and Covid-19). This led to the issuance of the Covid-19-Related Rent Concessions on May 28, 2020. This issuance amended IFRS 16, permitting lessees, as a practical expedient, not to assess whether rent concessions occurring as a immediate outcome of the covid-19 pandemic are lease modifications and, instead, to recognize those rent concessions as if they were not lease modifications (IASB, 2020, IFRS 16 and Covid-19). The amendment also allowed lessees to apply the practical expedient only to rent concessions for which any reduction in lease payments affects only payments originally due on or before June 30, 2021 (IASB, 2020, IFRS 16 and Covid-19). However, as the pandemic proved to be resilient, the IASB issued the Covid-19-Related Rent Concessions beyond June 30, 2021, on March 31, 2021, extending the practical expedient's availability to be applied the rent concessions (IASB, 2020, IFRS 16 and Covid-19).
FASB Amendments – ASU 2020-11
1. Provide additional time for implementation by deferring the effective date of LDTI by one year for all insurance entities.
2. Provide transition relief to facilitate the early application of LDTI and encourage accelerated delivery of better information to investors and other financial statement users.
The change is noted as the first Update noted that for entities that meet the definitions of an SEC filer, not including smaller reporting companies (SRCs), LDTI guidance was effective beginning after December 15, 2021 (FASB, 2020, ASU 2020-11). The second Update pushed this date back to December 15, 2022. ASU 2019-09 also provided that the guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, for all other entities. The dates were also pushed back by a year due to the updates of ASU 2020-11 (FASB, 2020, ASU 2020-11).
Conclusion
In summary, the pandemic impacted both the insurance and leasing sectors. To aid parties that were affected by earlier standards issued, the IASB and FASB issued amendments. The IASB issued amendments to IFRS 16 as they observed that the pandemic resulted in many lessors providing rent concessions to lessees. Also, the FASB issued ASU 2020-11 pertaining to improvement of accounting for Long-Duration Contracts (LDTI). The update was to change effective dates established in a prior amendment to ASU no. 2018-12. The amendments corrected the issues, allowing time for the proper practices and expectations to be fulfilled by affected parties.
References
Chakchouk, A. (2021). How will Covid-19 impact the present and future of the leasing industry? CODIX. https://www.codix.eu/en/company/stories/covid-19-impact-the-present-and-future-of-the-leasing-industry
Lehane, D. (2020, April 28). Impact of COVID-19 on the insurance industry. Deloitte. https://www2.deloitte.com/ie/en/pages/covid-19/articles/impact-COVID-19-insurance-industry.html
FASB (Financial Accounting Standards Board). (2018, August). Accounting Standards Update (ASU) No. 2018-12. Accounting standards codification. Retrieved from http://asc.fasb.org/
FASB (Financial Accounting Standards Board). (2020, November). Accounting Standards Update (ASU) No. 2020-11. Accounting standards codification. Retrieved from http://asc.fasb.org/
IASB (International Accounting Standards Board). (2016). IFRS 16 Leases. International Financial Reporting Standards. https://www.ifrs.org/issued-standards/list-of-standards/ifrs-16-leases/
IASB (International Accounting Standards Board). (2020). IFRS 16 and COVID-19. International Financial Reporting Standards. https://www.ifrs.org/projects/completed-projects/2021/ifrs-16-and-covid-19/#about
