EFRAG Final Comment Letter on the classification of debt with covenants

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

05 Apr 2022

The European Financial Reporting Advisory Group (EFRAG) has published its Final Comment Letter in response to the International Accounting Standard Board's (IASB's) Exposure Draft ED/2021/09 'Non-current Liabilities with Covenants (Proposed amendments to IAS 1)', which 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 final 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 supports that liabilities should be classified as either 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 proposal to require a separate presentation on the face of the statements of financial position of the 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 recommends that the IASB deletes paragraph 72C(b) and further considers paragraph 72C(a).  It also asks the IASB to clarify
    • the requirement in paragraph 72A of IAS 1 Presentation of Financial Statements that a right to defer must have 'substance'; and
    • the interaction between paragraphs 72B(b) and 75 of IAS 1.
  • EFRAG expresses concerns that the targeted scope of the disclosure requirements may be too broad in practice.

A press release and the final comment letter are available on the EFRAG website. 

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