In November 2021 the IASB published its Exposure Draft ED/2021/9 Non-current Liabilities with Covenants (Proposed Amendments to IAS 1).
The IASB’s comment deadline is 21 March 2022.
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 (e.g. covenants) in addition to addressing concerns about the classification of such a liability as current or non-current.
The proposed amendments would specify that conditions with which an entity must comply within twelve months after the reporting period do not affect classification of a liability as current or non-current. Instead, entities would present separately, and disclose information about, non-current liabilities subject to such conditions.
The Exposure Draft also proposes deferring the effective date of the amendment Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) to at least 1 January 2024.
The UKEB support a number of the proposals in the ED as they will lead to clearer classification and disclosure of non-current liabilities with covenants that will assist users’ decision making. The Board agreed with:
However, the Board are concerned about some of the proposals in the ED as follows:
Given that the ED is aimed at addressing specific concerns arising from the as yet unimplemented 2020 Amendments to IAS 1, to enable timely completion of the project the Board suggest that the IASB only proceed with amending paragraphs 72A, 72B and enhancing disclosure on conditions that could be breached leading to earlier repayment of non-current liabilities. Further standard setting should happen only if there is evidence of significant diversity in practice.
Our planned outreach on this project includes discussions with stakeholders and public consultation on our draft comment letter.
If you would like to contribute to outreach work on this project, please email UKEndorsementBoard@endorsement-board.uk