Liability Classification for IFRS Entities

On January 23, 2020, the International Accounting Standards Board (IASB) issued Classification of Liabilities as Current or Non-current, a narrow-scope amendment on the balance sheet classification covered under International Accounting Standard (IAS) 1 Presentation of Financial Statements. This amendment will provide further guidelines for entities reporting under the International Financial Reporting Standards (IFRS).

            Under IAS 1, liabilities are classified as non-current if the entity has substantive rights to defer settlement for 12 months or longer at the end of the reporting period. The new amendment specifies that management’s intentions and expectations for rights under a liability no longer impact the liabilities classification as current or long-term. The right to defer liability settlement only exists if the entity complies with relevant conditions at the reporting date. This includes the passing of covenants or obtaining a waiver for failed covenants at the reporting date. Entities that fail their covenants at or before the reporting date, but do not obtain a waiver until after the reporting date, must classify the liability as current. Liabilities that breach their covenants subsequent to the reporting date, but were in compliance at the reporting date, should be classified as non-current.

            The amendment is effective for annual reporting periods beginning January 1, 2022, with earlier adoption permitted. Adoption should be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

For more information concerning the International Financial Reporting Standards, please visit the Schneider Downs Our Thoughts On blog or email us at [email protected].

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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