Proposal Would Simplify How Entities Determine the Balance Sheet Classification of Debt

Published on January 23, 2017

The FASB proposed replacing today’s rules-based guidance for determining whether to classify debt as current or noncurrent on the balance sheet with a principles-based approach. Debt would be classified as noncurrent only when it is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date or when the entity has a contractual right to defer settlement for at least one year (or operating cycle, if longer) after the balance sheet date. While this approach would require entities to classify debt based on legal rights existing at the balance sheet date, an exception would be provided for waivers of debt covenant violations received after the balance sheet date but before the financial statements are issued. Entities would no longer be able to consider their intent and ability to refinance short term obligations after the balance sheet date on a long-term basis to support noncurrent classification . Comments are due by May 5, 2017

(Source: EY AccountingLink - US Week in Review - January 12, 2017)