Amendments to IAS 1: Long-term debt with covenants

Amendments to IAS 1: Long-term debt with covenants

• 16 November 2022
• Accounting
• South African Accounting Academy

The International Accounting Standards Board (IASB) has today issued amendments to IAS 1 Presentation of Financial Statements that aim to improve the information companies provide about long-term debt with covenants.

IAS 1 requires a company to classify debt as non-current only if the company can avoid settling the debt in the 12 months after the reporting date. However, a company’s ability to do so is often subject to complying with covenants. For example, a company might have long-term debt that could become repayable within 12 months if the company fails to comply with covenants in that 12-month period.

The amendments to IAS 1 specify that covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. Instead, the amendments require a company to disclose information about these covenants in the notes to the financial statements.

The IASB expects the amendments to improve the information a company provides about long-term debt with covenants by enabling investors to understand the risk that such debt could become repayable early.

The amendments also respond to stakeholders’ feedback on the classification of debt as current or non-current when applying requirements introduced in 2020 that are not yet in effect.

The amendments are effective for annual reporting periods beginning on or after 1 January 2024, with early adoption permitted.

Click here to access the IFRS webpage:

https://www.ifrs.org/news-and-events/news/2022/10/iasb-amends-accounting-standard-to-improve-information-about-long-term-debt-with-covenants/?utm_medium=email&utm_source=website-follows-alert&utm_campaign=daily

Relevance to Auditors, Independent Reviewers & Accountants:

• You need to assess fair presentation and compliance with the International Accounting Standards.  
• Non-compliance with International Accounting Standards may lead to a modified audit opinion.
• Your clients that prepare and present financial statements should be aware of the amendments that require a company to disclose information about these covenants in the notes to the financial statements.

Relevance to Your clients:

• An entity that prepares and presents financial statements should be aware of the amendments that require a company to disclose information about these covenants in the notes to the financial statements.

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