IASB proposes separate disclosure of Liabilities with Covenants
The International Accounting Standard Board (IASB) published an Exposure Draft “Non-current liabilities with covenants”, which proposed an amendment in IAS 1 Presentation of Financial Statements, according to which Non -Current Liabilities with Covenants shall be disclosed separately from other non-current liabilities.
According to the IAS-1, if the reporting entity have the right to defer the settlement of liability for at least 12 months, entity shall classify such liability as Non-current liability. However, sometimes terms and condition of the liability requires fulfillment certain covenants. If the subject covenant are not met, liabilities need to be settled immediately thus becoming current liability.
The proposal of above described disclosure was issued in response to questions and concern raised from stakeholder over the amendments issued for classification of liabilities as non-current liabilities in 2020.
The requirements are expected to improve the quality of information provided by the reporting regarding liabilities. The proposed requirement of separate disclosure of non-current liabilities with covenant its condition will help to access the users of financial statement whether such liabilities may become payable within a year. Access the Exposure Draft is open until 21 March 2022 for comments.
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