The proposals in the ED aim at clarifying the guidance in IAS 1 Presentation of Financial Statements on classification of liabilities as current or non-current.
Comments on the draft comment letter are requested by 3 June 2015.
The IASB issued the ED/2015/1 Classification of Liabilities - Proposed amendments to IAS 1 (the ‘ED’) on 10 February 2015, with comments due by 10 June 2015.
The proposals in the ED aim at clarifying the guidance in IAS 1 Presentation of Financial Statements on classification of liabilities as current or non-current. To do so, the IASB is proposing to clarify:
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That the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period
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The meaning of the term ‘settlement’ for the purposes of the classification of liabilities by adding that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services
To summarise, EFRAG agrees with the IASB’s objective to clarify the requirements in IAS 1 Presentation of Financial Statements on classification of liabilities and remove some inconsistencies in the terms used in the Standard. In EFRAG’s view, the proposals in the ED are likely to result in greater consistency in applying the principles in IAS 1 and therefore in relevant financial information.
However, to avoid further diversity in practice, EFRAG recommends that additional guidance is provided in situations where the rights to defer settlement of a liability are subject to conditions that occur and are assessed after the reporting period. EFRAG also believes that, to avoid unintended outcomes, the IASB should clarify the guidance in paragraph 69(d) for liabilities that can be settled, at the option of the counterparty, in an entity’s own instruments.
Finally, EFRAG suggests that the IASB further explores whether current guidance always provides the most relevant information when rights to defer settlement are not ‘substantive’ as of the reporting period. This could be achieved, for instance, as part of the ongoing research that the IASB is conducting in its Performance Reporting project.
Full press release
Full draft comment letter
© EFRAG - European Financial Reporting Advisory Group
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