Project Update

Simplifying the Balance Sheet Classification of Debt

Last updated on August 24, 2018. 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 proposed Accounting Standards Update, 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 (August 22, 2018)

The Board continued 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—Unused Long-Term Financing Arrangements
 
The Board reversed its previous decision that if a long-term financing arrangement is in place as of the balance sheet date (for example, an unused line of credit), the amount of current maturities for any other debt arrangements would be reduced by the unused amount of the long-term financing arrangement up to the amount of the current maturities and classified as a noncurrent liability. Therefore, an unused long-term financing arrangement in place at the balance sheet date should be disregarded in determining the classification of debt.
 
The Board directed the staff to conduct additional outreach, focusing on scenarios in which an entity has a redeemable instrument that is subject to a remarketing agreement and is also secured by a long-term letter of credit.
 
Grace Periods
 
The Board clarified how to apply the debt classification principle when a debt covenant violation exists and the creditor provides a grace period. Specifically, the Board decided that when a borrower violates a provision of a long-term debt agreement and the creditor provides a specified grace period for the borrower to cure the violation, which makes the debt no longer callable at the balance sheet date, the borrower should classify the debt as a noncurrent liability.  
 
The Board decided to require an entity to disclose information when a borrower violates a provision of a long-term debt agreement and the creditor provides a specified grace period. That disclosure would be required when (1) the violation has not been cured before the financial statements are issued (or are available to be issued) and (2) the violation would make the long-term obligation callable.
Effective Date
 
The Board decided that the effective date should be as follows:
  1. For public business entities, for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years
  2. For all other entities, for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. 
Next Steps
 
The Board directed the staff to draft an Accounting Standards Update for vote by written ballot.
 

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 an 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.
 
*August 22, 2018 Board Meeting—The Board continued 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).
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. To reduce complexity, the Board has decided to consider replacing current narrow scope guidance with a principles-based guidance.

Contact Information

Jenifer Wyss
Supervising Project Manager
jjwyss@fasb.org

Gabrielle Roe
Postgraduate Technical Assistant
groe@fasb.org