Question
In January 2020, the IASB issued an amendment to IAS 1 Presentation of Financial Statements (effective date January 2023). The amendment requires companies to classify
In January 2020, the IASB issued an amendment to IAS 1 Presentation of Financial Statements (effective date January 2023). The amendment requires companies to classify loans as current liabilities if the right to defer settlement beyond 12 months is (1) subject to debt covenants with testing dates after year-end and (2) they would have breached the covenants if the testing date had been at year-end. Following complaints by financial statement preparers, in September 2021, The IASB issued exposure draft ED/2021/9 Non-current Liabilities with Covenants that proposes to reverse the January 2020 amendment. Why do you think companies were so unhappy with the 2020 amendment to IAS 1? If the IASB had not reversed the amendment, what do you think managers would do? Use the debt hypothesis to draw your conclusion. In January 2020, the IASB issued an amendment to IAS 1 Presentation of Financial Statements (effective date January 2023). The amendment requires companies to classify loans as current liabilities if the right to defer settlement beyond 12 months is (1) subject to debt covenants with testing dates after year-end and (2) they would have breached the covenants if the testing date had been at year-end. Following complaints by financial statement preparers, in September 2021, The IASB issued exposure draft ED/2021/9 Non-current Liabilities with Covenants that proposes to reverse the January 2020 amendment. Why do you think companies were so unhappy with the 2020 amendment to IAS 1? If the IASB had not reversed the amendment, what do you think managers would do? Use the debt hypothesis to draw your conclusion.
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