The International Accounting Standards Board (IASB) has issued amendments to IAS 1 ‘Presentation of Financial Statements’ that aim to improve disclosures about long-term debt with covenants for periods beginning on or after 1 January 2024, with early adoption being permissible.
The amendments set out in ‘Non-current Liabilities with Covenants (Amendments to IAS 1)’ state that at the reporting date, the entity does not consider covenants that will need to be complied with in the future, when considering the classification of the debt as current or non-current. Instead, the entity should disclose information about these covenants in the notes to the financial statements.
The IASB aims for these amendments to enable investors to understand the risk that such debt could become repayable early and therefore improving the information being provided on the long-term debt.
The amendments are applicable for annual reporting periods beginning on or after 1 January 2024, with early application permitted. If the amendments are applied in an earlier period, this should be disclosed. The effective date coincides with that of the amendments to IAS 1 previously issued in 2020 ‘Classification of Liabilities as Current or Non-current’.
We welcome the IASB addressing this area, as we believe it addresses the feedback received on the classification of debt as current or non-current when preparers started to apply the previous amendments to IAS 1 ‘Classification of Liabilities as Current or Non-current’.