EFRAG draft comment letter on the classification of debt with covenants

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

21 Jan, 2022

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the exposure draft 'Non-current Liabilities with Covenants (Proposed amendments to IAS 1)' the IASB published to clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability.

In the draft comment letter, EFRAG supports the IASB’s efforts to address the concerns of constituents that have emerged in the context of the IFRS Interpretations Committee’s agenda decision of December 2020 and accepts that liabilities should be classified as current or non-current based on the situation as at the end of the reporting period.

However, EFRAG raises the following points:

  • EFRAG disagrees with the separate presentation of liabilities classified as non-current for which the entity’s right to defer settlement for at least twelve months after the reporting period is subject to conditions during that time.
  • EFRAG suggests changes to the wording for differentiation between covenants that do not affect the classification at balance sheet date and covenants that affect the classification.
  • EFRAG expresses concerns that the targeted scope of the disclosure requirements may be too broad in practice.

Comments on EFRAG's draft comment letter are requested by 9 March 2022. For more information, see the press release and the draft comment letter on the EFRAG website.

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