Project Update

Simplifying the Balance Sheet Classification of Debt

Last updated on September 13, 2017. Please refer to the Current Technical Plan for information about the expected release date the final standard.

(Updated sections are indicated with an asterisk *)

The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

Project Objective
Due Process Documents
*Decisions Reached at Last Meeting
*Tentative Board Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Background Information
Contact Information

Project Objective

The objective of this project is to provide guidance that will reduce the cost and complexity of determining the current versus noncurrent balance sheet classification of debt.

Due Process Documents

On January 10, 2017, the FASB issued the Exposure Draft, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent). The due date for comment letters was May 5, 2017.

*Decisions Reached at Last Meeting (September 13, 2017)

Tentative Board Decisions

The Board completed redeliberations of proposed Accounting Standards Update, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent). The Board made the following decisions.

Classification Principle

The Board affirmed the proposed amendments that debt and other instruments within the scope of the final Update should be classified as noncurrent liabilities in a classified balance sheet if either of the following criteria is met as of the balance sheet date:
  1. The liability is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date.
  2. The entity has a contractual right to defer settlement of the liability for at least one year (or operating cycle, if longer) after the balance sheet date.
The Board decided to clarify the following:
  1. The issuance of equity instruments does not constitute settlement when determining whether debt should be classified as current or noncurrent.
  2. If, before the balance sheet date, an arrangement is in place with a third party (for example, a line of credit) that would result in the entity avoiding the transfer of current assets within 12 months from the balance sheet date, the debt should be classified as noncurrent because the entity has a contractual right to defer settlement.
Scope

The Board decided to modify the proposed scope to clarify that the classification principle also should apply to lease liabilities (under Topic 842, Leases).

Waivers of Debt Covenant Violations

The Board affirmed the proposed amendments to provide an exception to the classification principle for waivers of debt covenant violations received after the balance sheet date but before the financial statements are issued. That exception would continue to require an entity to classify a debt arrangement as a noncurrent liability when there has been a debt covenant violation, if the entity receives a waiver of that violation that meets certain conditions before the financial statements are issued (or are available to be issued). The Board also affirmed the conditions that must exist for an entity to qualify for that exception.

Separate Presentation in a Classified Balance Sheet

The Board affirmed the proposed amendments that an entity should separately present, in a classified balance sheet, the amount of debt that is classified as a noncurrent liability because of waivers obtained after the balance sheet date.

Refinancing after the Balance Sheet Date

The Board affirmed the proposed amendments for short-term debt that is refinanced on a long-term basis after the balance sheet date. The classification principle should apply to those debt arrangements, which would result in an entity classifying those debt arrangements as current liabilities.

Disclosures

The Board affirmed the proposed amendments that would require an entity to disclose information about events of default.

Implementation Guidance and Illustrative Examples
The Board affirmed the proposed implementation guidance and illustrative examples with revisions to conform and clarify that guidance, as needed.

Transition Method and Transition Disclosures

The Board affirmed the proposed transition guidance that an entity should apply a prospective method of transition. That transition would be applied to all debt arrangements and other instruments within the scope that exist at the date of initial adoption and after that date.

The Board also affirmed the proposed amendments on transition disclosures.

Effective Date

The Board decided that the effective date
  1. For public business entities will be for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
  2. For all other entities will be for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.
Early Adoption

The Board affirmed that early adoption is permitted.

Costs and Benefits

The Board decided that the benefits justify the costs of the changes and directed the staff to draft an Accounting Standards Update for vote by written ballot.

A copy of the Board meeting handout can be found here.

*Tentative Board Decisions Reached to Date

A list of tentative Board decisions reached to date can be found here.

*Next Steps

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Boards' deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

*September 13, 2017 Board Meeting—The Board completed redeliberations on issues from its January 2017 proposed Accounting Standards Update, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent).
June 28, 2017 Board Meeting—The Board discussed comment letter feedback received. The handout from the Board meeting can be found here.
October 19, 2016 Board Meeting—The Board discussed project direction, stakeholder feedback, and sweep issues that arose since the last meeting.
July 29, 2015 Board Meeting—The Board concluded its initial deliberations on this project.
January 28, 2015 Board Meeting—Principle for balance sheet classification of debt
January 28, 2015 Board Meeting—Principle for balance sheet classification of debt
August 13, 2014 Board Meeting—Agenda prioritization meeting about whether to add a project to the Board’s agenda

Background Information

This project is part of the Board’s Simplification Initiative. The objective of the Simplification Initiative is to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information required to be reported by an entity.

The Board has heard from stakeholders that the guidance on the balance sheet classification of debt is unnecessarily complex. In order to reduce complexity, the Board has decided to consider replacing current narrow scope guidance with a principle.

Contact Information

Jenifer Wyss
Supervising Project Manager
jjwyss@fasb.org

Lindsey Matherson
Postgraduate Technical Assistant
lmatherson@fasb.org