Amendments to IAS 1 on liabilities classification

On 23 January 2020, the IASB published narrow-scope amendments to IAS 1 – Presentation of Financial Statements. The amendments, entitled Classification of Liabilities as Current or Non-current, aim to promote consistency in classification.

Keywords: Mazars, Thailand, IFRS, IAS 1, IASB, Financial Statements, Liabilities

26 March 2020

In particular, they should help companies to determine the classification of liabilities with an uncertain settlement date in the statement of financial position.

The amendments make the following clarifications:

  • an entity’s right to defer settlement of a liability for at least twelve months after the reporting period must have substance and must exist at the end of the reporting period;
  • if the right to defer the 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 (this applies even if the lender has not assessed whether the entity is in compliance with the conditions at this date);
  • classification is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least twelve months after the reporting period. If a liability meets the criteria to be classified as non-current, it shall be classified in this way even if the management intends or expects the entity to settle it in within twelve months after the end of the reporting period (or even if the entity has settled it between the end of the reporting period and the date when the financial statements are authorised for issue). In such situations, entities are encouraged to disclose information about the timing of settlement, to enable users to understand the impact of the liability on the entity’s financial position;
  • ‘settlement’ is defined as the transfer to a counterparty of cash, other economic resources (such as goods or services) or the entity’s own equity instruments.

These amendments clarify current requirements but do not substantially change them and are thus not expected to have a significant impact on entities’ financial statements.

They are mandatory for financial periods commencing on or after 1 January 2022 and shall be applied retrospectively. Early application is permitted.