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The International Accounting Standards Board (IASB) has proposed amendments to IAS 1 Presentation of Financial Statements to improve the information companies provide about long-term debt with covenants.
IAS 1 requires a company to classify a liability as non-current only if the company has a right to defer settlement of the liability for at least 12 months after the reporting date. However, such a right is often subject to the company complying with covenants after the reporting date. For example, a company might have long-term debt that could become repayable within 12 months if the company fails to comply with covenants after the reporting date.
The proposed amendments would specify that, in such a situation, covenants would not affect the classification of a liability as current or non-current at the reporting date. Instead, a company would:
- present non-current liabilities that are subject to covenants on the statement of financial position separately from other non-current liabilities; and
- disclose information about the covenants in the notes to its financial statements, including their nature and whether the company would have complied with them based on its circumstances at the reporting date.
The deadline for submission of comments is 21 March 2022.
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