The IASB published guidance on whether to classify debt as current or non-current when entities need to comply with debt covenants.

IAS 1 on Presentation of Financial Statements requires debt to be classified as non-current if it can avoid settling debt in 12 months after reporting date. In the current environment, questions have been raised about the classification of debt as current or non-current when entities need to comply with debt covenants.

At year end, an entity may have debt which becomes repayable within in the next 12 months if it does not meet certain debt covenants. Covenants that need to be compiled with after the reporting date do not affect the classification of debt as current or non-current at reporting date. Disclosures should be provided in the financial statements to users of financial statements about the existence of covenants and the potential risks involved.

For more information read the press release here.