IASB finalises amendments to IAS 1 regarding the classification of debt with covenants

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31 Oct, 2022

The International Accounting Standards Board (IASB) has published 'Non-current Liabilities with Covenants (Amendments to IAS 1)' to clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. The amendments are effective for reporting periods beginning on or after 1 January 2024.

 

Background

In January 2020, the Board issued Classification of Liabilities as Current or Non-current, which amended IAS 1 Presentation of Financial Statements. The amendments clarified how an entity classifies debt and other financial liabilities as current or non-current in particular circumstances. The amendments are effective for annual reporting periods beginning on or after 1 January 2023, with earlier application permitted.

In December 2020, the IFRS Interpretations Committee published a tentative agenda decision in response to informal feedback and enquiries about how an entity applies the amendments to particular fact patterns. After considering feedback to its tentative agenda decision, the Committee handed the matter over to the IASB as that feedback provided information about situations the Board did not specifically consider when developing the 2020 amendments.

In response to that new information, the Board decided to amend IAS 1 with respect to classification (as current or non-current), presentation and disclosures of liabilities for which an entity’s right to defer settlement for at least 12 months is subject to the entity complying with conditions after the reporting period.

A corresponding exposure draft was published in November 2021. After deliberating the feedback received, the IASB has now finalised the proposed amendments.

 

Key changes

The amendments in Non-current Liabilities with Covenants (Amendments to IAS 1)

  • Modify the requirements introduced by Classification of Liabilities as Current or Non-current on how an entity classifies debt and other financial liabilities as current or non-current in particular circumstances: Only covenants with which an entity is required to comply on or before the reporting date affect the classification of a liability as current or non-current. In addition, an entity has to disclose information in the notes that enables users of financial statements to understand the risk that non-current liabilities with covenants could become repayable within twelve months.
  • Defer the effective date of the 2020 amendments to 1 January 2024.

Three proposals the IASB included in its November 2021 exposure draft were not finalised:

  • the requirement that an entity has to present non-current liabilities with covenants separately in the statement of financial position;
  • the requirement that an entity has to disclose whether and, if so, how it expected to comply with covenants after the reporting date; and
  • the clarifications of some situations in which an entity would not have a right to defer settlement of a liability.

Feedback on the exposure draft in these cases led the IASB to conclude that the proposed amendments were not needed, too costly, or would fail to achieve their objective.

 

Effective date

The amendments are effective for reporting periods beginning on or after 1 January 2024. The amendments are applied retrospectively in accordance with IAS 8 and earlier application is permitted.

 

Additional information

The following additional information is available on the IASB website and on IAS Plus:

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