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17.4 Contract modifications
Publication date: 30 Sep 2021
us IFRS & US GAAP guide
Under the relief offered by US GAAP and the amendments to IFRS, the accounting for contract modifications that are the result of reference rate reform result in no immediate gain or loss recognition. The relief allows an entity to disregard certain aspects of existing US GAAP and IFRS in order to account for the modifications of financial instruments by adjusting the effective yield prospectively. The exact guidance depends on the modification guidance in existing standards, including ASC 310, ASC 470, and ASC 842 for US GAAP and IFRS 9 and IFRS 16 for IFRS.
US GAAP | IFRS |
For qualifying contract modifications to contracts accounted for under ASC 310 or ASC 470, no gain or loss will be recorded as a result of the modification. The amortized cost basis will remain unchanged (with the exception of any additional fees that are eligible to be capitalized) and a new effective yield will be established.
For qualifying modifications to lease contracts accounted for under ASC 840 or ASC 842, an entity is not required to reassess lease classification or the discount rate, or remeasure lease payments, or the lease contract.
Under ASC 848, a reporting entity is not required to reassess its original conclusions as to whether a contract contains an embedded derivative that is clearly and closely related to the host contract.
| Similar to US GAAP, the IFRS amendments allow an entity to account for qualifying modifications for financial assets and financial liabilities under IFRS 9 by updating the effective interest rate and not recognizing an immediate gain or loss.
The IFRS amendments to IFRS 16 for lease contracts provide a practical expedient such that for qualifying modifications, a lessee will remeasure the lease liability by discounting the revised lease payments using a discount rate that reflects the change in the interest rate.
The IASB did not provide specific guidance for embedded derivatives and did not provide a similar principle to extend the relief to other areas not specifically discussed in the amendments.
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