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IAS 1 – Current/non-current classification of debt (rollover agreements)

Date recorded:

IAS 1 Presentation of Financial Statements - Current/non-current classification of debt (rollover agreements)

A request was received in October 2010 by the IFRS Interpretations Committee, to clarify the meaning of unconditional right to defer settlement' in paragraph 69(d) of IAS 1 Presentation of Financial Statements. This issue was discussed at the Committee's November 2010 meeting, and the Committee asked the staff to perform outreach on the topic in order to understand the level of diversity in practice.

Based on the outreach responses received, it seemed that diversity in practice arose where an existing liability due within 12 months after the reporting date is renegotiated for at least another 12 months, with the same lender at different terms. The staff therefore recommended that paragraph 73 of IAS 1 should be amended as follows:

If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the reporting period under an existing loan facility with the same lender, on the same or similar terms, it classifies the obligation as non-current, even if it would otherwise be due within a shorter period. However, when refinancing or rolling over the obligation is not at the discretion of the entity (for example, there is no arrangement for refinancing), the entity does not consider the potential to refinance the obligation and classifies the obligation as current.

The Committee tentatively agreed that the proposed wording is acceptable. It was also tentatively agreed that there should be a cross-reference to the derecognition guidance for financial liabilities (paragraph 40 of IAS 39).

The Committee also agreed with the staff's assessment that the proposed amendment should be made through the Annual Improvements process.

Paper 11A of the Committee meeting in November 2010 discussed whether the assessment of a right as unconditional (as contemplated in paragraph 69 of IAS 1) requires consideration of all possible future circumstances, or only those that exist at reporting date. Specifically, whether there is any reason to believe that the lender providing the long-term finance would not be able to honour facility if called upon. Almost all outreach responses stated that only circumstances up to the balance sheet date (and up to the approval of the financial statements) should be considered, and that assessing the going concern of the lender is not required for purposes of classifying the liability. The staff therefore proposed that the Committee take no action in respect of this issue. All Committee members were in agreement.

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