IASB issues amendments to IAS 1 Non-current Liabilities with Covenants

The IASB has issued final amendments to IAS 1 Non-current Liabilities with Covenants.

In January 2020, the IASB had issued amendments to IAS 1 (the 2020 amendments), which clarified how an entity classifies liabilities as current or non-current. The amendments were effective for the annual reporting periods beginning on or after 1 January 2023. BDO issued an IFR Bulletin on these amendments, which is available here. One of the requirements of the 2020 amendments was that if an entity’s right to defer settlement is subject to the entity complying with specified conditions, the right exists at the end of the reporting period only if the entity complies with those conditions at the end of the reporting period. For the right to defer settlement to exist at the end of the reporting period, the amendments required the entity to comply with the conditions at the end of the reporting period even if the lender does not test compliance until a later date.

In response to feedback and enquiries from stakeholders, in December 2020, IFRIC issued a Tentative Agenda Decision (TAD), which analysed the applicability of the amendments to three scenarios. However, due to the feedback received and various concerns raised about the outcome of applying the amendment, IFRIC did not finalise the tentative agenda decision. The IFRIC reported the feedback to the IASB, highlighting new information that the IASB had not considered when developing the amendments.

Having considered the new information, the IASB decided to propose the narrow-scope amendments to IAS 1. The exposure draft of the proposed amendment was issued in November 2021, with comment period ending on 21 March 2022. Having considered the feedback, the IASB has now issued the final amendments to IAS 1 Non-current Liabilities with Covenants.

The amendments specify that covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. An entity is required to disclose information about these covenants in the notes to the financial statements. The amendments are effective for annual reporting periods beginning on or after 1 January 2024, with early adoption permitted.

The 2020 amendments included some requirements that are not further amended by the current amendments. These requirements primarily pertained to clarification of the meaning of settlement. The current amendments also change the effective date of these amendments to 1 January 2024.

The final amendments may be accessed here.