Classification of Liabilities (Agenda Paper 12B)
The Board considered how its proposals in the Exposure Draft Classification of Liabilities (Proposed amendments to IAS 1) should be applied when conditions in the lending agreement are tested or reviewed after the end of the reporting period. The Board tentatively decided that:
- compliance with any conditions in the lending agreement should be assessed as at the reporting date;
- any requirement in the lending agreement to test compliance with those conditions at a date after the end of the reporting period should not change the requirement for classification to be based on an assessment of compliance as at the end of the reporting period;
- the proposed amendments should require that compliance with a condition as at the end of the reporting period should determine whether a right that is subject to that condition should affect classification (as described in paragraph BC4 of the ED);
- when an agreement includes a periodic review clause, in which the lender has the right to demand repayment, the entity has a right to defer settlement only up to the date of the periodic review; and
- the Board’s proposals, that classification of a liability is based on rights in existence at the end of the reporting period and compliance with any conditions is assessed as at the end of the reporting period, should not be amended in respect of a periodic review clause.
13 of the 14 Board members agreed with these decisions.
At a future Board meeting, the staff expect to examine the guidance with respect to the transfer of equity as a means of settlement by using specific examples raised in the consultation.