UKEB publishes its final comment letter on the classification of debt with covenants

  • UK Endorsement Board (UKEB) Image

29 Mar, 2022

The UK Endorsement Board (UKEB) has issued its final comment letter on the International Accounting Standard Board's (IASB's) Exposure Draft ED/2021/9 'Non-current Liabilities with Covenants (Proposed Amendments to IAS 1)'.

The IASB published the exposure draft 'Non-current Liabilities with Covenants (Proposed amendments to IAS 1)' in November 2021 to clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability.

The UKEB final comment letter has been informed from in-house research and stakeholder feedback.  The UKEB supports a number of the proposals in the ED however it has the following concerns:

  • It does not support the specific requirement for separate presentation in the Statement of Financial Position (paragraph 76ZA(a)) as it believes that the current general requirements in IAS 1 Presentation of Financial Statements are sufficient.
  • The potential for unintended consequences of some elements of the ED’s proposals. These include (but are not limited to):
    • The meaning of “specified conditions” (paragraph 72B).  The UKEB indicates that if the term is meant to have a particular meaning it should be defined, otherwise it suggests “conditions” should be used.
    • The application of paragraph 72C(b) when determining if a liability is current.  The UKEB has encountered significant diversity in interpreting the intent of this paragraph and suggests that paragraph 72C is deleted.

To enable timely completion of the project, the UKEB suggests that the IASB only proceed with amending paragraphs 72A, 72B (with specific clarifications as indicated in the comment letter) and enhancing disclosure on conditions that could be breached leading to earlier repayment of non-current liabilities.  The UKEB suggests that further standard setting should happen only if there is evidence of significant diversity in practice.

The final comment letter and the feedback statement are available on at UKEB website. 

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.