IASB approves changes to the classification requirements for liabilities as current or non-current

In October 2022, the International Accounting Standards Board (IASB) approved an amendment to IAS 1 Presentation of Financial Statements to the requirements for classifying liabilities as current or non-current.

They follow amendments made by the IASB in 2020, and in some cases, supersede them. The changes could result in some liabilities being reclassified for annual periods beginning on or after 1 January 2024.

It should be noted that as at the time of writing this article, the New Zealand Accounting Standards Board (NZASB) has yet to adopt and issue this latest round of amendments to NZ IAS 1. In contrast, this amendment has been adopted by the Australian Accounting Standards Board (AASB).

Care will thus need to be taken by multi-national groups or full NZ IFRS reporters if a decision is made to early adopt these amendments to IAS 1 for 31 December 2022 year ends, as the IFRS and NZ IFRS requirements are not yet in sync, which will lead to complications, and a breach of compliance with either NZ IFRS or IFRS (see more on this below). As soon as the NZASB issues the amendment, this issue will fall away.

Our December  2022 Corporate Reporting Insights article, New rules for classifying liabilities from 1 January 2024, summarises the ‘final position’ after combining both the 2020 and the 2022 amendments. Please refer here for more information.

What does this mean for 31 December 2022 financial reports?

The effect on 31 December 2022 financial reports depends on whether the entity decides to early adopt these amendments.

As the October 2022 IASB amendment has not been adopted in New Zealand, New Zealand entities that claim compliance with NZ IFRS or NZ IFRS Reduced Disclosure Regime are only able to early adopt the 2020 amendments to IAS 1.

However, foreign entities complying with IFRS (including Australian entities) will be able to early adopt the 2022 amendment as it was approved and published by 31 December 2022. In doing so, these entities are required to adopt, both the 2022 and 2020 amendments at the same time. Cross-border groups may thus run into issues, with the New Zealand entity(ies) being unable to early adopt the 2022 amendment. If you find yourself in this situation, please contact BDO IFRS Advisory for assistance.

For Tier 1, full NZ IFRS reporters, early adoption of the amendment at 31 December 2022 is also problematic, as in doing so under NZ IFRS only the 2020 amendment is available for adoption. However, to also state compliance with IFRS - as these entities are required to do - will require them to also adopt the 2022 amendment, which is not yet available in New Zealand. If you find yourself in this situation, please contact BDO IFRS Advisory for assistance.

In addition to the above issues, early adoption may not be advantageous for a number of other areas, for example:

• If an entity has convertible notes with conversion features classified as derivate liabilities that will potentially need to be reclassified as current liabilities.
• Extra disclosure is required where the right to defer settlement is subject to the entity complying with loan covenants in the next twelve months. 

The effect of applying the amendments must be disclosed (as required by paragraph 28 of by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors), and the new disclosures required by the amendment(s) to IAS 1 must also be provided.

If the entity does not wish to early adopt the amendments, the impacts of accounting standards issued not yet effective must be noted in Tier 1 general purpose financial reports. As the amendments apply retrospectively to annual periods beginning on or after 1 January 2024, 31 December 2022 financial reports should quantify the effect of the changes when the new requirements are applied to liabilities in the opening balance sheet on 1 January 2023. For New Zealand Tier 1 entities disclosure will need to be made of the fact that the 2022 amendment has been issued by the IASB, but not by the NZASB, and will need to detail the differences in its quantification disclosure.

More information

Please refer to our previous article and our International Financial Reporting Bulletin for more information about these amendments or contact BDO IFRS Advisory for assistance

 

For more on the above, please contact your local BDO representative.