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In November 2021, the International Accounting Standards Board (IASB) published the Exposure Draft Non-current Liabilities with Covenants (proposed amendments to IAS 1). The Exposure Draft aims to improve the information an entity provides when its right to defer settlement of a liability for at least twelve months is subject to compliance with conditions, in addition to addressing concerns about the classification of such a liability as current or non-current.

IASB® Update June 2022

The IASB met on 20 June 2022 to discuss feedback on its Exposure Draft Non-current Liabilities with Covenants (Exposure Draft), which proposed amendments to IAS 1 Presentation of Financial Statements. The comment period for the Exposure Draft ended on 21 March 2022. The IASB also discussed how to proceed with the project.

Classification as current or non-current (Agenda Paper 12B)

The IASB tentatively decided:

  1. to finalise the proposed amendments to paragraph 72A of IAS 1 and the addition of paragraph 72B. That is, the IASB tentatively decided to confirm that only covenants with which an entity must comply on or before the reporting date would affect a liability’s classification as current or non-current.
  2. to provide no further clarification or application guidance on:
    1. determining whether a right to defer settlement has substance; or
    2. applying paragraphs 74–75 of IAS 1.
  3. not to finalise the proposed clarification in paragraph 72C about situations in which an entity would have no right to defer settlement but, instead, to specify that the proposed requirements in paragraph 72B apply only to liabilities arising from loan arrangements.

All 10 IASB members agreed with these decisions.

Separate presentation and disclosure (Agenda Paper 12C)

The IASB tentatively decided:

  1. not to finalise the proposal to require an entity to present separately non-current liabilities with covenants but, instead, to require an entity to disclose the carrying amount of such liabilities in the notes.
  2. to finalise the proposal to require an entity to disclose information about non-current liabilities with covenants, with some modifications. Specifically, the IASB tentatively decided to require that, when an entity classifies liabilities arising from loan arrangements as non-current and those liabilities are subject to covenants, the entity is required to disclose information that enables investors to assess the risk that the liabilities could become repayable within 12 months, including:
    1. information about the covenants with which the entity is required to comply (such as the nature of the covenants and the date on which the entity must comply with them).
    2. facts and circumstances that indicate the entity may have difficulty complying with covenants when it is required to do so—for example, the entity having acted during or after the reporting period to avoid or mitigate a potential breach. Such facts and circumstances could also include the fact that the entity would not have complied with the covenants based on its circumstances at the reporting date.

All 10 IASB members agreed with these decisions.

Transition and effective date deferral (Agenda Paper 12D)

The IASB tentatively decided:

  1. to require an entity to apply the proposed amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
  2. to allow an entity to adopt early the proposed amendments or the amendments in Classification of Liabilities as Current or Non-current (2020 amendments), but only if the entity adopts the proposed amendments and the 2020 amendments at the same time.
  3. to defer the effective date of the 2020 amendments to align it with the effective date of the proposed amendments. The effective date will be decided at a future meeting, but it will be no earlier than annual reporting periods beginning on or after 1 January 2024.

All 10 IASB members agreed with these decisions.

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IFRS Amendment