23. January 2020
Today, the IASB has issued Amendments to IAS 1 Classification of Liabilities as Current or Non-Current.
The Board added to the classification principle clarification that an entity’s right to defer settlement must exist at the end of the reporting period. This means, that the classification of liabilities as current or non-current requires an assessment of whether an entity has the right to defer settlement of a liability and not whether the entity will exercise that right, i.e. classification is unaffected by management intentions or expectations.
If an entity’s right to defer settlement of a liability is subject to the entity complying with conditions specified in a lending agreement (e.g. financial covenants), the entity has the right to defer settlement of the liability at the end of the reporting period if it complies with those conditions at that date – even if the lender does not test compliance until a later date.
Furthermore, the IASB clarified that terms of a liability that could, at the option of the counterparty, result in its settlement by transfer of the entity’s own equity instruments do not affect its classification if, applying IAS 32, the entity classifies the option as an equity instrument, recognizing it separately from the liability as an equity component of a compound financial instrument.
An entity shall apply the amendments for annual periods beginning on or after 1 January 2022 retrospectively.
The standard is available from the IASB only, and subject to charges (further information).