Classification of liabilities – what is happening internationally?

The International Public Sector Accounting Standards Board (IPSASB) proposed amendments to IPSAS 1 on Presentation of Financial Statements as part of their latest improvements project (see previous article on Improvements to IPSAS, 2021. In finalising the improvements project, the IPSASB decided not to include the amendments to IPSAS 1 as a result of changes being considered by the International Accounting Standards Board (IASB) to IAS 1 on Presentation of Financial Statements.

Amendments to IAS 1 – Why is the IASB proposing them?

IAS 1 requires that, for an entity to classify a liability as non-current, the entity must have the right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period.

Amendments to IAS 1 in 2020 clarified how an entity assesses whether it has the right to defer settlement of a liability when that right is subject to compliance with specified conditions (often referred to as “covenants”) within twelve months after the reporting period.

Stakeholders raised concerns with the IFRS Interpretations Committee (IFRIC) on the 2020 amendments. In response, the IFRIC explained: an entity only has the right to defer settlement of a liability (i.e. classify the liability as non-current) when the entity complies with specified conditions, based on its circumstances, at the end of the reporting period. This is the case even if compliance with such conditions are only required within twelve months after the reporting period.

In response to these concerns, the IASB issued an Exposure Draft on Non-current Liabilities with Covenants – Proposed amendments to IAS 1 with a comment deadline of 21 March 2022.

Amendments to IAS 1 – What amendments are the IASB proposing?

The proposed amendments specify that entities do not consider conditions which they must comply with in twelve months after the reporting period. Such conditions do not affect classification of a liability as current or non-current. Instead, entities present separately, and disclose information about, non-current liabilities subject to such conditions.

The Exposure Draft also proposes to defer the effective date of the 2020 amendments to when the new proposed amendments are effective.

How do these proposals impact Standards of GRAP?

The proposed amendments have no immediate impact on the Standards of GRAP. The Accounting Standards Board will consider them only after they have been considered by the IPSASB.