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Deferral of effective date of amendments to IAS 1

Date recorded:

Cover paper (Agenda Paper 29)

The Board published the Exposure Draft ED/2020/3 Classification of Liabilities as Current or Non-current—Deferral of Effective Date (Proposed amendment to IAS 1) in May 2020. The objective of this meeting was to present the Board with a summary of feedback on the proposal in the ED, together with the staff’s analysis and recommendation. The staff also asked the Board whether it wishes to finalise the proposed amendment to IAS 1.

Comment letter analysis and recommendation to finalise the amendment (Agenda Paper 29A)

Nearly all respondents agreed with the proposal to defer the effective date of the amendments to IAS 1 by one year. Three respondents, amongst which one big accounting firm, disagreed for the following reasons:

  • delaying implementation of the amendments could result in financial statements that do not faithfully represent the financial position of the reporting entity—Staff response: The amendments clarify the requirements for presentation of liabilities instead of fundamentally changing the required accounting; recognition and measurement requirements are unaffected.
  • the implementation of new Standards often affects compliance with contracts and agreements such as bank covenants, but the Board does not usually provide such long implementation periods for new Standards—Staff response: The amendments may result in changes in classification of liabilities which could directly affect entities’ compliance with loan covenants requiring affected entities to renegotiate their debt covenants. Additionally, the COVID-19 pandemic could delay the start of any renegotiation which may be more protracted.
  • deferring the effective date of the amendments at the same time as allowing early adoption may reduce comparability between those entities that choose to early adopt and those that do not—Staff response: Entities that do not choose to apply the amendments to IAS 1 early will be required by IAS 8 to disclose known or reasonably estimable information about the possible impact of the amendments.
  • the relief given by a deferral of the effective date is likely to be limited. This is because entities will be required by IAS 8 to disclose known or reasonably estimable information relevant to assessing the possible impact of the amendments to IAS 1 on an entity’s financial statements—Staff response: . Providing the information required by IAS 8 would require less implementation effort than applying the amendments in full and would be unlikely to affect compliance with contracts and agreements such as bank covenants.

Three accounting firms expressed concerns about possible diversity in practice when implementing the amendments. They ask whether a right to defer the settlement exists at the end of the reporting period if the lender tests compliance with specified conditions based on particular financial results at a specified date other than the end of the reporting period, and the entity would not meet the conditions at the end of the reporting period if the lender were to test based on the financial results at the end of the reporting date. They say that they are aware of different interpretations on this matter and suggest the Board provide clarification.

The staff clarified that the Board did not propose any changes to the amendments issued in January 2020 other than the deferral of the effective date. Therefore, considering implementation questions would go beyond the scope of the proposal in the ED and could delay the operational relief that the proposed deferral is intended to provide.

Staff recommendation

The staff recommended that the Board finalise the proposed amendment to IAS 1 with no changes.

Board decision

There was no discussion on this paper. All Board members supported finalisation of the amendment.

Due process and permission to ballot (Agenda Paper 29B)

In this paper, the staff asked whether:

  • the Board agrees with the staff’s recommendation not to re-expose the amendment to IAS 1.
  • any Board member intends to dissent from issuing the amendment to IAS 1.
  • the Board is satisfied it has complied with the applicable due process requirements and that it has undertaken sufficient consultation and analysis to begin the balloting process for the amendment to IAS 1.

Board decision

There was no discussion on this paper. All Board members agreed not to re-expose the amendment and gave permission to ballot. None of the Board members indicated that they would dissent from the finalisation of the amendment.

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