Defining Issues | July 2019

FASB issues revised exposure draft on balance sheet classification of debt

The FASB aims to simplify the guidance on classifying debt on the balance sheet, by introducing an overarching classification principle, and updating the guidance on certain transactions. The proposed revisions would change the current/noncurrent classification of debt for many entities. The exposure draft is open for comment until [Insert Date].


The proposed ASU applies to entities that prepare classified balance sheet and have debt arrangements, including convertible debt instruments and liability-classified mandatorily redeemable financial instruments, as well as, lease liabilities (under Topic 842).

Relevant dates

  • The Board will consider effective dates after it has evaluated comments on the exposure draft.

Key impacts

  • Introduces classification principle that requires noncurrent classification if (a) the liability is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date or (b) the entity has a contractual right as of the balance sheet date to defer settlement of the liability for at least one year (or operating cycle, if longer) after the balance sheet date.
  • Generally retains the current guidance for classifying debt as noncurrent if a debt covenant waiver is obtained after the balance sheet date, but before the financial statements are issued, provided certain conditions are met.
  • Prohibits consideration of subsequent refinancing in determining debt classification at the balance sheet date.
  • Eliminates the probability assessment for subjective acceleration clauses for most debt. Such clauses would only impact debt classification when triggered.
  • Requires separate line-item presentation of debt classified as a noncurrent liability because of a waiver of forbearance obtained. 
  • Enhances disclosures about events of default, triggers of a subjective acceleration clause, and grace periods.
  • Many entities that currently classify debt as noncurrent because of available sources of financing would classify debt as current; conversely, entities that currently classify debt as noncurrent because of likelihood that subjective acceleration clause will be invoked would classify debt as current.



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