IASB Request for Information Post-implementation Review of IFRS 16 Leases

Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)

13 October 2025Dr Andreas BarckowInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Andreas,IASB Request for InformationPost-implementation Review of IFRS 16 LeasesThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,ethics and sustainability disclosures for professional accountants in Hong Kong. We aregrateful for the opportunity to provide you with our comments on this Request forInformation (RFI).Overall, we consider that IFRS 16 has achieved its objectives and has improved thetransparency and comparability of financial information regarding leases. We alsobelieve that the core principles of IFRS 16 are clear. Nevertheless, we have identifiedapplication issues relating to certain aspects of the requirements that warrant the IASB’sfurther consideration. We provide detailed comments in the Appendix, and summariseour primary comments and recommendations below.Rent concessionsThere have been ongoing concerns regarding the lack of clarity in how a lesseedistinguishes between a lease modification under IFRS 16 and an extinguishment (orpartial extinguishment) of a lease liability under IFRS 9 Financial Instruments whenaccounting for rent concessions. These challenges were particularly evident during theCOVID-19 pandemic and have re-emerged with the recent economic slowdown anduncertainty as entities negotiate rent concessions.While the IASB addressed part of this issue in the 2024 Annual Improvements to IFRSAccounting Standards – clarifying through a narrow-scope amendment to IFRS 9 that alessee is required to apply IFRS 9.3.3.3 when it has determined that a lease liability hasbeen extinguished in accordance with IFRS 9 – the broader issue of how IFRS 9 andIFRS 16 interact remains unresolved. We believe that this Post-implementation Reviewpresents an appropriate and timely opportunity for the IASB to address this broader issue.In light of the above, we recommend that the IASB undertake a narrow-scope standard-setting project to clarify the interaction between IFRS 16 and IFRS 9 in the context ofrent concessions. To support this recommendation, we have included potentialapproaches, along with their rationale, in the Appendix for the IASB’s consideration. Wealso suggest that the IASB provide illustrative examples to enhance consistentapplication of the requirements.Page 2 of 11Sale and leaseback transactionsWe noted several application questions regarding the assessment of whether a transferof an asset in a sale and leaseback transaction qualifies as a sale under IFRS 15Revenue from Contracts with Customers. These application questions are frequentlyencountered in practice, particularly in the real estate industry, and divergent views existdue to a lack of guidance in IFRS 16. Accordingly, we recommend that the IASB provideclarification on how the relevant requirements should be applied. These applicationquestions include:

(i) Whether a seller-lessee’s renewal option in a sale and leaseback transaction, whichpermits the seller-lessee to extend the lease for substantially all the remainingeconomic life of the underlying asset and places them in a similar position to a lesseethat has an option to purchase the underlying asset, precludes accounting for theasset transfer as a sale;

(ii) How to determine the unit of account when an entire building is sold but only part ofthe building is leased back;

(iii) Whether the asset transfer may still constitute a sale if the buyer-lessor classifies theleaseback as a finance lease; and(iv) Whether a reassessment of the transfer of asset as a sale is required when the seller-lessee’s repurchase option lapses.Corporate wrappersThere is a lack of guidance on how to account for a transaction in which an entity sellsits equity interest in a subsidiary that holds one asset to a third party and leases thatasset back. Specifically, it is unclear whether such transactions should be accounted forby (i) first applying the loss of control requirements in IFRS 10 Consolidated FinancialStatements and then overlaying the sale and leaseback requirements in IFRS 16 torecognise partial gain or loss, or (ii) applying IFRS 10 only and recognising a full gain orloss for the disposal of the subsidiary. Similar questions have also been raised regardingthe accounting considerations for other fact patterns, such as the disposal of a corporatewrapper with one or more assets that constitute a business.Transactions involving corporate wrappers are prevalent in the real estate industry andaccounting issues often arise, such as in the sale of properties through a corporatewrapper. We believe that the underlying question for these issues is the same, i.e.whether the form of the transaction should result in a different accounting outcome.Given the cross-cutting nature of the corporate wrapper issues across several IFRSAccounting Standards and consistent with our comments provided in our submission onthe Post-implementation Review of IFRS 10, IFRS 11 Joint Arrangements and IFRS 12Disclosure of Interests in Other Entities, we recommend that the IASB undertake abroader project to address these issues holistically.If you have any questions regarding the matters raised in this letter, please contactCarrie Lau (carrie@hkicpa.org.hk) or Katherine Leung (katherineleung@hkicpa.org.hk),Associate Directors of the Standard Setting Department.Sincerely,Cecilia KweiDirector of Standard SettingPage 3 of 11Work undertaken by the HKICPA in forming its views:

The HKICPA:

(a)

issued an Invitation to Comment on the RFI on 19 June 2025 to its members andother stakeholders;

(b)

sought input from its Leases Advisory Panel, Financial Instruments Advisory Panel,Revenue Recognition Advisory Panel, Small and Medium Practices Committeeand its Technical Issues Support Group, which mainly comprise technical andindustry experts from large as well as small and medium accounting firms;

(c)

held a public roundtable discussion on 13 August 2025 for local stakeholders,including technical experts and auditors from professional accounting firms, users,academics, and preparers from the telecommunication, aviation, retail, logisticsand insurance sectors;

(d)

conducted a targeted outreach to a preparer of a listed corporate;

(e)

reviewed the findings from regulators’ reports focusing on the application of IFRS16; and(f)

developed its views through its Financial Reporting Standards Committee, havingreflected on its respondents’ views. The Committee comprises preparerrepresentatives from various industry sectors, regulators, as well as technical andindustry experts from small, medium and large accounting firms.Detailed comments on the IASB RFIQuestion 1—Overall assessment of IFRS 16Question 4—Ongoing costs for lessees of applying the measurementrequirements

1.We consider that IFRS 16 has achieved its objectives, and its core principles areclear. The requirement for a lessee to recognise both right-to-use (ROU) assets andlease liabilities in the statement of financial position has improved the transparencyand quality of financial information related to lease arrangements. Some preparersand users believe that this requirement enhances comparability between entities thatlease assets and those that borrow to acquire assets, thereby aiding analysis anddecision-making.

2.Despite the high initial implementation costs, the ongoing costs of applying therequirements are often manageable for most preparers once the systems were setup and updated to maintain all lease contracts in accordance with IFRS 16.

3.A few preparers have highlighted that they incur considerable ongoing costs ─ muchhigher than those associated with IAS 17 Leases ─ when applying IFRS 16, evenafter the Standard has been in effect for several years. These entities are typicallyfrom lease intensive industries or businesses with frequent lease modifications andcomplex lease arrangements, such as the retail and the banking sectors. Given theirlarge lease portfolios, these entities often engage external professional firms tomanage their lease-related IT systems on an ongoing basis. Although IT systemsare utilised, significant manual effort and judgement are still required in applying therequirements in IFRS 16, such as the impairment assessment of ROU assets, leasemodification accounting and the reassessment of lease liability. This is because theIT systems cannot accommodate the various permutations of lease arrangements.

4.While the ongoing costs remain high, these preparers expressed no appetite for anysignificant changes to the Standard nor did they propose any solutions that couldreduce costs while maintaining the benefits of IFRS 16.AppendixPage 4 of 11Question 2—Usefulness of information resulting from lessees’ application ofjudgementDiscount rate

5.Our users have expressed concerns about the lack of sufficient information tounderstand how discount rates, typically based on incremental borrowing rates(IBRs), are determined, creating difficulties in comparing information among entities.They suggested introducing the following disclosures on IBRs to help them betterassess the impact of leases on financial statements:

(i)

Methodology used to determine the IBR; and(ii) IBR as a weighted average or a range.

6.We note that the disclosures of discount rates are not new to entities. The proposeddisclosures are consistent with existing requirements of other IFRS AccountingStandards, which require similar disclosure of information about discount rates.Examples include:

StandardReferenceDisclosure requirementsIAS 36 Impairment ofAssetsIAS 36.130Requires disclosure of discount rateused in value-in-use calculations.IAS 19 EmployeeBenefitsIAS 19.76and 144Requires disclosure of significantactuarial assumptions includingdiscount rate.IFRS 17 InsuranceContractsIFRS

17.117Requires disclosure of assumptionsincluding the approach used todetermine the discount rate.IFRS 13 Fair ValueMeasurementIFRS

13.93(d)

and 99Requires disclosure of significantinputs.Exposure DraftProvisions – TargetedImprovements (Proposedamendments to IAS 37)

ED. IAS

37.85(d)

Proposes disclosure of discount rateand the approach used to determinethe rate if a provision is discounted.Therefore, we expect that the market is familiar with these types of disclosures andknows how to comply with the proposed requirements.

7.While we agree that the proposed disclosures could improve the transparency aboutdiscount rates and support more informed analysis, we anticipate that the proposeddisclosures are likely to require preparers to incur costs for additional data collection.Accordingly, we recommend that the IASB seek further input from preparers,especially those in lease-intensive industries, on their potential costs as well as theirviews on the nature and extent of discount rate disclosures. Where appropriate, theIASB could consider incorporating the aforementioned disclosure suggestions intoIFRS 16.B48, thereby requiring lessees to assess the relevance of such disclosuresfor users’ understanding of the financial statements.Page 5 of 11Variable lease payments

8.Our respondents, primarily preparers and accounting firms, highlighted the followingtwo practical challenges in applying the requirements related to variable leasepayments (VLPs).

9.The first issue relates to the application of IFRS 16.27(b), which requires VLPsdepending on an index or rate to be included in the measurement of lease liability.IFRS 16 does not define the terms ‘index’ or ‘rate’ and only provides limited guidancein IFRS 16.28 and IFRS 16.BC 165, which suggest that these terms typically reflectmarket conditions and that VLPs are included in the lease liability if they areunavoidable and do not depend on the lessee’s future activities. Practical challengesarise in determining whether VLPs that depend on an index or rate that is not linkedto general market conditions or performance of the lessee or the underlying asset,such as those based on the lessee’s credit rating, fall under the requirement in IFRS

16.27(b).

10.We agree that the determination of what constitutes VLPs that depend on an indexor rate is a matter of fact and sometimes require application of judgement. However,we are concerned that the current guidance in IFRS 16 may not provide a sufficientbasis for consistent application of such judgement in similar circumstances.Accordingly, we recommend that the IASB clarify the principles underlying IFRS

16.27(b), specifically the definition and scope of the terms ‘index’ or ‘rate’, to supportpreparers in exercising judgement when applying the requirements.

11.The second issue relates to the depreciation of ROU assets under lease contractsthat include both fixed and variable payments (not depending on an index or rate)

across different periods. While IFRS 16.31-32 provide clear guidance on thedepreciation of ROU assets, we note that the accounting outcomes may notappropriately reflect the timing and pattern of consumption of economic benefits fromthe underlying asset in certain situations. This could mislead users in assessing anentity’s financial performance, particularly when the financial impact is material.

12.Consider a simplified example of a five-year lease in which Years 1 and 2 involveVLPs based on turnover, while Years 3-5 involve fixed annual payments. Leaseliabilities and ROU assets are initially measured at the present value (PV) of the fixedpayments of Years 3 to 5. Applying IFRS 16.31-32, the lessee depreciates this PVamount evenly over the full five-year term, resulting in disproportionate lease-relatedexpenses in Years 1 and 2 due to the inclusion of both ROU depreciation and VLPs,while Years 3 to 5 include only ROU depreciation. This scenario is particularlycommon in the retail sector where the customer’s business is still developing, andinitial sales are relatively low in the first few years of the lease term. The front-endloading of expenses raises concerns about mismatched expense recognition relativeto the consumption of economic benefits of the underlying assets across the period.

13.Although this issue arises from the initial measurement of lease liability, whichexcludes VLPs not dependent on an index or a rate under IFRS 16.27(b), andconsequently from the ROU asset under IFRS 16.24(a), we recognise that thisexclusion was based on cost-benefit considerations during the development of IFRS

16.Therefore, rather than revisiting the treatment of VLPs, we recommend that theIASB reassess the appropriateness of the accounting outcome of the ROUdepreciation and consider providing specific guidance in IFRS 16, for instance,requiring lessees to develop accounting policies that align the depreciation of ROUassets and related rental expenses with the timing and pattern of consumption ofeconomic benefits of the underlying assets.Page 6 of 11Question 3—Usefulness of information about lessees’ lease-related cash flows

14.We agree that the implementation of IFRS 16 has improved the quality andcomparability of financial information about lease-related cash flows presented anddisclosed by lessees.

15.Nevertheless, some respondents, including several users and preparers from theretail sector, shared the same concerns outlined in spotlight 3(a) of the RFI regardingthe different classifications of various cash flows arising from lease arrangements,such as payments of principal and interest, VLPs and short-term/low-value leases inthe statement of cash flows. This complex presentation makes it difficult for usersand management to analyse lessees’ lease-related cash flows, which is essential forprojecting future cash flows and making investment decisions. They recommendedthat the IASB add the following disclosure requirements:

(i) Providing a breakdown of total cash outflow for leases, showing the cash flowsfor the repayment of the principal, interest and variable lease payments; and(ii) Explaining how each cash flow item in the breakdown is presented across thedifferent categories of the statement of cash flows.

16.We believe that the above suggestions would help users better understand howlessees’ lease-related cash flows are presented in the statement of cash flows. Wealso consider that the costs of providing the breakdown of total cash outflow forleases would not be significant, as the required information is readily available inpreparers’ records. Preparers should have this information when they compile theexisting disclosure of total cash flows for leases under IFRS 16.53(g). Consideringthe above, we recommend that the IASB further engage with users and preparers tounderstand the cost-benefit considerations of the suggested disclosures and whereappropriate, including them in IFRS 16.Question 5—Potential improvements to future transition requirements

17.We welcome the transition options and practical expedients provided under thetransition requirements in IFRS 16, which have helped preparers reduce theirtransition costs while maintaining the adequacy of information for users tounderstand the effect of implementing IFRS 16. A majority of our respondentsindicated that they adopted the modified retrospective approach (without restatingcomparative information) at the initial application of the Standard. Overall, webelieve the transition requirements achieve a cost-benefit balance.Question 6.1—Applying IFRS 16 with IFRS 9 to rent concessions

18.Rent concessions were notably more prevalent during the COVID-19 pandemic buthave since become less common and material. However, with the recent economicslowdown and uncertainty, we have observed a resurgence in reductions in fixedlease payments, indicating that such concessions are becoming frequent again.

19.In Hong Kong, rent concessions are typically accounted for as lease modificationsunder HKFRS 16 (equivalent to IFRS 16), particularly due to the approach illustratedin the Institute’s educational material on rent concessions published in 2020.However, divergent practices still exist in the market, as there are differing views onwhether rent concessions should be accounted for as lease modifications underIFRS 16 or as partial extinguishments of lease liabilities under IFRS 9. We have alsoPage 7 of 11received consistent feedback from our respondents requesting that the IASB clarifythe scope of rent concessions and the related accounting treatment.

20.We noted that the IASB issued a narrow-scope amendment to IFRS 9 via the 2024Annual Improvements to IFRS Accounting Standards. These amendments clarifythat when a lessee has determined that a lease liability has been extinguished inaccordance with IFRS 9, the lessee is required to apply IFRS 9.3.3.3 and recogniseany resulting gain or loss in profit or loss. However, the broader issue of how a lesseedistinguishes between a lease modification as defined in IFRS 16 and anextinguishment (or a partial extinguishment) of a lease liability remains unresolved1.

21.To address stakeholder concerns, we recommend that the IASB undertake a narrow-scope standard-setting project to clarify this issue. From our outreach activities, wehave identified the following possible approaches to account for the scenarios asdescribed in spotlight 6.1 of the RFI for the IASB’s consideration:

(i) Treat the rent concessions as lease modifications under IFRS 16:

The rationale for this approach is that a lessor’s decision to forgive leasepayments is ultimately linked to the continuation of an ongoing leasingtransaction or relationship. Therefore, it would be logical to treat suchconcessions as lease modifications under IFRS 16 rather than asextinguishments of financial liabilities under IFRS 9, where there might not be acontinuation of the contractual relationship. This approach could be implementedby amending IFRS 9 to specify that IFRS 9.3.3.1 and 3.3.3 do not apply to rentconcessions.(ii) Differentiate rent concessions based on whether they are credit risk-related, suchas forbearance:

a) Rent concessions arising solely from credit risk-driven forbearance, withoutchanges to the scope of ROU, would be accounted for under IFRS 9, withthe impact recognised immediately in profit or loss. This approach is basedon the rationale that such forbearance resembles debt restructurings, forwhich the IFRS 9 modification requirements for financial liabilities wouldapply, and the impact would be recognised immediately in profit or loss.b) Other rent concessions would be accounted for as lease modifications underIFRS 16, with no immediate profit or loss impact.(iii) Introduce a rebuttable presumption:

The rebuttable presumption is that rent concessions are generally accounted forunder IFRS 16, unless there is clear and pervasive evidence that the concessionis driven solely by credit risk, in which case IFRS 9 would apply. This approachrecognises that in practice, many rent concessions arise from multiplecircumstances, such as commercial or operational reasons, not just economicstress. This makes it challenging to distinguish whether rent concessions aredriven by credit risk-related factors or not. Additionally, in cases where suchdistinctions can be made, reasonably attributing concessions to credit or non-credit risk-related factors may be inherently subjective. Therefore, a presumptionto apply IFRS 16 could provide a more practical and consistent approach.

22.We recommend that the IASB explore these approaches, assess their conceptualsoundness and engage stakeholders to assess practical feasibility. We alsorecommend that the IASB include illustrative examples to support consistent1 The IASB concluded that clarifying the interaction between IFRS 9 and IFRS 16 was beyond the scope ofan annual improvement [IFRS 9.BC2.45].Page 8 of 11application of the requirements. We observed that the three fact patterns discussedby the IFRS Accounting Standards Discussion Group of the Canadian AccountingStandards Board, as referenced in IASB March 2025 meeting paper, Staff Paper,AP7E, para 21, may be particularly helpful. These examples highlight the real-lifescenarios and the following practice issues:

(i) Whether the payments forgiven are current or past due, or if they are future leasepayments, affects the accounting treatment.(ii) Whether the unit of account, i.e. the whole lease contract versus individual leasepayments, affects the determination of whether IFRS 9 or IFRS 16 should apply,and how to determine the appropriate unit of account.We recommend that the IASB consider these scenarios in developing the illustrativeexamples for the interactions between IFRS 16 and IFRS 9.Question 6.2—Applying IFRS 16 with IFRS 15 when assessing whether the transferof an asset in a sale and leaseback transaction is a sale

23.We have observed similar application questions to those described in spotlight 6.2of the RFI regarding how to determine whether the transfer of an asset by the seller-lessee in a sale and leaseback transaction qualifies as a sale under IFRS 15. Theseapplication questions are pervasive in the real estate industry. Due to a lack ofguidance in these areas, entities exercise judgement in applying the Standards,leading to diversity in practice. Accordingly, we recommend that the IASB provideclarification to assist entities in assessing whether the transfer of an asset in a saleand leaseback transaction constitutes a sale. The following paragraphs explain thedifferent views on these application issues and their rationale.Seller-lessee’s renewal option to extend the lease for substantially all the remainingeconomic life of the underlying asset

24.It is common in the Real Estate Investment Trust sector for the seller-lessee to havea renewal option in a sale and leaseback transaction, permitting the seller-lessee toextend the lease for substantially all the remaining economic life of the underlyingasset. Some entities considered that such renewal option may be viewed as havingsimilar economic substance as a call option on the underlying asset because IFRS

16.BC 173 states that a lessee that has an option to extend a lease for all of theremaining economic life of the underlying asset is, economically, in a similar positionto a lessee that has an option to purchase the underlying asset. According to IFRS

15.B66(a), if an entity has an obligation or a right to repurchase the asset (either aforward or a call option), the transfer of the asset does not qualify as a sale. Therefore,the question arises as to whether the renewal option to extend the lease forsubstantially all the remaining economic life of the underlying asset precludesaccounting for the transaction as a sale.Unit of account

25.Our respondents have raised question as to how to determine the unit of accountwhen applying the sale and leaseback requirements to cases in which a seller-lesseesells an entire building while leasing back only part of that building (e.g. some floors)

or sells a partially constructed asset and leases back the completed asset.Specifically, they questioned whether the unit of account in the transfer of the assetneeds to be the same as that in the leaseback transaction.Page 9 of 11

26.One perspective is that the entire building is considered a single unit of account.Under this view, the transfer of the whole building and the leaseback of some floorswould be accounted for separately because the leaseback does not involve the sameasset, i.e. the whole building.

27.Alternatively, others consider that each floor could be treated as a single unit ofaccount based on the following different reasons:

(i) Each floor should be assessed to determine whether it meets the definition of aseparate lease component in IFRS 16.B32. Typically, each floor in a building isphysically distinct and capable of being used separately, the use of each floorwould not depend on the other floors. Therefore, each floor would be an identifiedasset under IFRS 16.B20 and would be treated as a separate lease component.The assessment of whether a sale has occurred would be made separately foreach floor subject to the leaseback.(ii) This approach is supported by analogy to paragraph 10 of IAS 40 InvestmentProperty which requires separate consideration of portions of a property held-for-use and those held for rentals and/or capital gains if that portion could be soldseparately or leased out separately under a finance lease. If each floor could besold or leased out separately under a finance lease, the seller-lessee woulddetermine whether a sale has occurred for each floor.The buyer-lessor classifies the leaseback as a finance lease

28.IFRS 16 is unclear as to whether the asset transfer constitutes a sale if the buyer-lessor classifies the leaseback as a finance lease.

29.One view is that the asset transfer does not constitute a sale because the seller-lessee substantially retains all the risks and rewards associated with the ownershipof the asset, indicating that control of the asset has not been transferred to the buyer-lessor.

30.Another view is that the buyer-lessor’s classification of a leaseback as a financelease does not, in itself, preclude accounting for the transfer of the asset as a sale.This is because IFRS 16 does not explicitly require the leaseback arrangement in asale and leaseback transaction to be an operating lease in order for the transfer ofthe asset to qualify as a sale. Those who hold this view also considered that theconcepts of ‘transfer of risks and rewards’ and ‘transfer of control’ of the underlyingasset are not exactly the same. The transfer of almost all the risks and rewards in afinance lease does not directly imply the transfer of all rights to use the underlyingasset. Therefore, it cannot be ruled out that the buyer-lessor still retains rights overthe remaining assets. Furthermore, applying IFRS 16.100 to the case where theleaseback is a finance lease, the seller-lessee would retain a high proportion of thecarrying amount of the asset, with only small gain or loss recognised for the assettransfer, which essentially reflects the substance of the transaction.Reassessment upon expiry of repurchase option

31.It is common for a seller-lessee to have a right to repurchase the asset (repurchaseoption) in a sale and leaseback transaction. The transfer of the asset does not meetthe requirements in IFRS 15 as a sale at contract inception as per IFRS 15.B66.However, IFRS 15.B69 states that if the option lapses unexercised, an entity shallderecognise the liability and recognise revenue. This leads to the question ofwhether a reassessment of the transfer of the asset is a sale is required when therepurchase option lapses in a sale and leaseback transaction.Page 10 of 11Question 6.3—Applying IFRS 16 with IFRS 15 to gain or loss recognition in a saleand leaseback transaction

32.We agree with the partial gain or loss recognition model for the sale and leasebacktransactions in IFRS 16. Although the seller-lessee sells the entire underlying assetto the buyer-lessor from a legal perspective, the seller-lessee retains its right to usethe asset for the duration of the leaseback from an economic perspective. Therefore,we consider that the recognition of partial gain and loss that relates to the righttransferred to the buyer-lessor appropriately reflects the economics of suchtransactions.Question 6.4—Other matters relevant to the assessment of the effects of IFRS 16Corporate wrappers

33.There is a lack of guidance on how to account for a transaction in which an entitysells its equity interest in a subsidiary that holds one asset to a third party and leasesthat asset back. Specifically, it is unclear whether the entity should(i)

first apply the loss of control requirements in IFRS 10 and then overlay the saleand leaseback requirements in IFRS 16 to recognise only partial gain or lossfrom the transaction, or(ii) apply only IFRS 10 and recognise the full amount of gain or loss from the saleof its equity interest in the subsidiary.

34.Supporters of view (i) considered that applying both IFRS 10 and IFRS 16 reflectsthe substance of the transaction, i.e. the transfer of an asset (via the sale of acorporate wrapper). In addition, IFRS 16.BC 261 highlights the IASB’s view that, inconsidering whether a transaction should be accounted for as a sale and leasebacktransaction, an entity should consider not only the legal form of the transaction butalso the economic effects of the transaction. Conversely, those who support view (ii)

argued that recognising a partial gain or loss would contradict the full gain or lossrecognition requirements in IFRS 10, and there is no clear support from IFRSAccounting Standards indicating that the seller-lessee could apply both IFRS 10 andIFRS 16 simultaneously to the transaction.

35.Furthermore, our respondents questioned whether the accounting considerationswould differ in other fact patterns, for example, the disposal of a subsidiary with oneor more assets that constitute a business, or if the leaseback relates only to part ofthe assets.

36.Transactions involving corporate wrappers are prevalent in the real estate industry,and accounting issues often arise. In our submission on the PIR of IFRS 10, IFRS11 and IFRS 12, we raised similar questions regarding the sale of properties througha corporate wrapper. The underlying question for these transactions is the same, i.e.whether the form of the transaction should result in a different accounting outcome.

37.Given the cross-cutting nature of the corporate wrapper issues across several IFRSAccounting Standards, we reiterate our recommendation in the PIR of IFRS 10, IFRS11, and IFRS 12 that the IASB should undertake a broader project to address thecorporate wrapper issues holistically rather than through piecemeal amendments toavoid any unintended consequences.Page 11 of 11Collectability criterion in the recognition of lease income

38.IFRS 16.81 requires a lessor to recognise lease payments from operating leases asincome on either a straight-line basis or another systematic basis. However, unlikeIFRS 15, IFRS 16 does not specify a collectability criterion that must be met for alessor to recognise operating lease income.

39.There are differing views on how a lessor measures and recognises lease incomeunder an operating lease when the lessee experiences financial difficulties. One viewis that the lessor should not recognise lease income because collectability should beconsidered by analogy to IFRS 15.9(e), which requires an assessment of whether itis probable that the lessor will collect the lease payments. Another view is that thelessor should continue recognising lease income, even in extreme situations,because IFRS 16 does not include a collectability criterion similar to that in IFRS

15.9(e). The lessor should apply the impairment requirements in IFRS 9 to measureand recognise the expected credit losses of the lease receivable.

40.We consider that this issue could become material, particularly in light of the recenteconomic downturn and volatility. Furthermore, it would impact the top line of thefinancial statements of lessors which is a key financial metric for users andmanagement to assess the performance of the entities. Accordingly, we recommendthat the IASB provide clarification on this issue.~ End ~