AASB Exposure Draft ED 316 Non-current Liabilities with Covenants

Thursday, December 2, 2021

ED 316 proposes amendments to AASB 101 Presentation of Financial Statements to improve the information entities provide about long-term debt with covenants. The ED incorporates IASB  ED/2021/9.

AASB 101 requires an entity to classify a liability as non-current only if the entity has a right to defer settlement of the liability for at least 12 months after the reporting date. However, such a right is often subject to the entity complying with covenants after the reporting date. For example, an entity might have long-term debt that could become repayable within 12 months if the entity fails to comply with covenants after the reporting date.

The proposed amendments specify that, in such a situation, covenants would not affect the classification of a liability as current or non-current at the reporting date. Instead, an entity would:

• present non-current liabilities that are subject to covenants on the statement of financial position separately from other non-current liabilities; and
• disclose information about the covenants in the notes to its financial statements, including their nature and whether the entity would have complied with them based on its circumstances at the reporting date.

These proposals would improve the information an entity provides about non-current liabilities with covenants by enabling users of general purpose financial statements to assess whether such liabilities could become repayable within 12 months.

Please submit your comments to the AASB by 3 February 2022, via the AASB website or email.