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Short-term convergence - Liability Classification

Date recorded:

The Boards have previously come to divergent conclusions as to how to classify debt that would be callable at the balance sheet date because of a violation of the debt agreement if not for the existence of a grace period.

Tentative FASB decisions would allow liabilities due on demand because of a breach of a debt covenant to be classified as noncurrent if at the time that the financial statements are issued, either the breach has been rectified during the period of grace, or it is probable that the breach will be rectified during the period of grace.

Tentative IASB decisions would require that a liability that is in breach of a covenant at the balance sheet date be classified as current unless the grace period extends at least twelve months beyond the balance sheet date (or within one operating cycle, if longer). The proposed IASB approach would consider the curing of the breach during the grace period but after the balance sheet date, whether before or after financial statement issuance, to be a post balance sheet date event that is not relevant to conditions existing at the balance sheet date.

A general vote indicated a preference for the IASB approach (17-4). All 4 votes were FASB members and 3 indicated they would object to exposing the IASB approach.

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.