The International Accounting Standards Board (IASB) issued narrow-scope amendments to International Accounting Standards (IAS 1), Presentation of Financial Statements, to clarify how to classify debt and other liabilities as current or non-current.
Current or Non-current Debt
The objective of the amendments, Classification of Liabilities as Current or Non-current (Amendments to IAS 1), is promote consistency in applying the IAS 1 requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (that is, due or potentially due to be settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a company might settle by converting it into equity.
The amendments clarify, not change, existing requirements. They are not expected to affect companies’ financial statements significantly. However, these amendments could result in companies reclassifying some liabilities from current to non-current, and vice versa; this could affect a company’s loan covenants. Thus, to give companies time to prepare for the amendments, the IASB decided to provide two years to comply.
The amendments are effective for annual periods beginning on or after January 1, 2022. They should be applied retrospectively. Early application is permitted.
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