At its September 13 meeting, the Financial Accounting Standards Board (FASB) wrapped up talks on the Proposed Accounting Standards Update, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent). As part of the discussion, the FASB reached the decisions on the following topics:
- Classification Principle: Debt and other instruments that are part of the final Accounting Standards Update must be categorized as noncurrent liabilities in a classified balance sheet if:
- The liability is contractually due to be settled over one year (or operating cycle, if longer) after the balance sheet date; or
- The entity is contractually allowed to defer the liability settlement for at minimum one year (or operating cycle, if longer) after the balance sheet date.
- Scope: The proposed scope to clarify that the classification principle should apply to lease liabilities was modified.
- Waivers of Debt Covenant Violations: An exception to the classification principle for waivers of debt covenant violations obtained after the balance sheet date but prior to when financial statements are issued will be provided. The FASB also confirmed the conditions that should be present for businesses to qualify for the exception.
- Separate Presentation in a Classified Balance Sheet: The proposed changes that a business must separately present, in its classified balance sheet, the debt categorized as a noncurrent liability due to waivers received after the balance sheet date were affirmed.
- Refinancing after the Balance Sheet Date: The proposed changes for short-term debt refinanced on a long-term basis after the balance sheet date were affirmed.
- Disclosures: The proposed changes requiring a business to disclose information on events of default were affirmed.
- Implementation Guidance and Illustrative Examples: The proposed implementation guidance and illustrative examples were affirmed with updates that follow and clarify the guidance, as necessary.
- Transition Method and Transition Disclosures: The proposed transition guidance that a business must use a prospective method of transition was affirmed. The transition would apply to debt arrangements and other instruments established at the initial adoption date. The proposed changes on transition disclosures were also affirmed.
- Effective Date and Early Adoption: Public businesses must apply the changes to fiscal years, including interim periods within those years, starting after December 15, 2019. All other businesses must apply the changes to fiscal years starting after December 15, 2020, and interim periods within fiscal years starting after December 15, 2021. Early adoption will be permitted.
The FASB concluded the meeting by directing staff members to draft the final Accounting Standards Update for vote.
