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Classification of Debt with Covenants as Current or Non-current (Proposed amendments to IAS 1) [ED]

Comment period ends on March 21, 2022

Next steps:

The IASB will review the feedback it receives on its exposure draft in the first half of 2022

Last up­dated:

November 2021

Overview

At its meeting on June 23, 2021, the Board decided to amend IAS 1, Presentation of Financial Statements, in response to new information provided by respondents re the tentative Agenda Decision Classification of Debt with Covenants as Current or Non-current. At a future meeting the Board will discuss the transition requirements for the proposed amendments, as well as the Board’s compliance with applicable due process steps.

  • Classification and disclosure

The Board tentatively decided to amend IAS 1 so that:

  • it specifies that if the right to defer settlement for at least 12 months is subject to an entity complying with conditions after the reporting period, then those conditions would not affect whether the right to defer settlement exists at the end of the reporting period (the reporting date) for the purposes of classifying a liability as current or non-current; and
  • for non-current liabilities subject to conditions, an entity is required to disclose information about:
    • the conditions (for example, the nature of and date by which the entity must comply with the condition);
    • whether the entity would comply with the conditions based on its circumstances at the reporting date; and
    • whether and how the entity expects to comply with the conditions by the date on which they are contractually required to be tested.
  • Separate presentation

The Board tentatively decided to amend IAS 1 to require that an entity present separately in its statement of financial position ‘non-current liabilities subject to conditions in the next 12 months’. This line item would include liabilities classified as non-current for which the right to defer settlement for at least 12 months is subject to the entity complying with conditions after the reporting date.

  • Further clarification

The Board tentatively decided to amend IAS 1 to clarify that an entity does not have a right to defer settlement at the reporting date when the related liability could become repayable within 12 months:

  • at the discretion of the counterparty or a third party (for example, when a loan is callable by the lender at any time without cause); or
  • if an uncertain future event occurs (or does not occur) and the event’s occurrence (or non-occurrence) is unaffected by the entity’s future actions (for example, when the liability is a financial guarantee or insurance contract liability).
  • Deferral of the effective date of the 2020 amendments to IAS 1

The Board tentatively decided to amend IAS 1 to defer the effective date of the 2020 amendments to no earlier than January 1, 2024.

 

Other De­vel­op­ments

November 2021

On November 19, 2021, the IASB published the exposure draft Non-current Liabilities with Covenants (Proposed amendments to IAS 1) to clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. The deadline for submitting comments is March 21, 2022.

September 2021

On September 27, 2021, the IASB staff updated the Work Plan to indicate that the Board plans to issue an Exposure Draft in November 2021.

July 2021

On July 23, 2021, the IASB staff updated the Work Plan to indicate that the Board plans to issue an Exposure Draft in October 2021.

June 2021

At its meeting on June 23. 2021, the Board decided to amend IAS 1, Presentation of Financial Statements, in response to new information provided by respondents re the tentative Agenda Decision Classification of Debt with Covenants as Current or Non-current.  

 

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