IASB Proposes Amendments to IAS 1 – Non-current Liabilities with Covenants

On 19 November 2021, the IASB has published for public comment the Exposure Draft ED/2021/9 Non-current Liabilities with Covenants (Proposed amendments to IAS 1).

The proposed amendments would clarify the classification of non-current liabilities that are subject to lending conditions (such as covenants), that are tested only after the end of the reporting period. This refers, for example, to the classification of liabilities in the case of covenants that will be tested only at a future point in time (e.g., at an interim reporting date).

In the ED, the IASB proposes that if the right to defer settlement of a liability for at least 12 months after the end of the reporting period depends on the entity complying with a condition that is not due to be tested until a later date, those conditions do not affect whether the right to defer settlement existed at the end of the reporting period (and hence do not affect classification of that liability as current or non-current). Furthermore, the IASB proposes additional disclosure and presentation requirements for non-current liabilities with covenants.

The ED supplements the amendments to IAS 1 on the classification of liabilities as current or non-current published by the IASB in January 2020. Accordingly, the IASB proposes to defer the effective date of the 2020 amendments to IAS 1.

Comments can be submitted to the IASB until 21 March 2022.

Background information:

• In January 2020 the IASB issued “Classification of Liabilities as Current or Non-current”, which amended IAS 1 and clarified how to classify debt and other financial liabilities as current or non-current in particular circumstances (2020 amendments).
• In response to feedback and enquiries from some stakeholders, the IFRS Interpretations Committee published a tentative agenda decision about how an entity applies the IAS 1 amendments to particular fact patterns. Respondents to that tentative agenda decision provided information about situations the IASB did not specifically consider when developing the 2020 amendments.
• In response to that new information, the IASB proposes 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.