FASB makes a second effort to improve balance sheet debt classification

By Ken Tysiac

After considering comments on a previous proposal for improving balance sheet debt classification, FASB issued a reproposal on the issue Thursday.

FASB is attempting to improve guidance used to determine whether debt should be classified as a current or noncurrent liability on a classified balance sheet. The board issued its first proposal on the issue in January 2017.

The initial proposal contained provisions to replace the current, fact-specific guidance with an overarching, cohesive principle for determining whether debt or other instruments within the scope of the proposal should be classified as a current or noncurrent liability as of the balance sheet date.

Comments from stakeholders, including the Private Company Council, led FASB to issue the reproposal with added proposed requirements related to unused long-term financing arrangements, such as a line of credit and grace periods.

The revised proposed Accounting Standards Update (ASU) seeks comments on these changes, as well as the expected costs and benefits of the proposed amendments.

“With these revisions, the FASB believes the proposed ASU further clarifies the guidance for balance sheet classification of debt and would provide more consistent and transparent information to financial statement users,” FASB Chairman Russell Golden said in a news release.

Because much of the reproposal is similar to the original proposal, the board is seeking public comment only on the questions on unused long-term financing arrangements; grace periods; debt arrangements settled entirely in equity; and on the costs and benefits of the proposed amendments. Comments can be submitted at FASB’s website by Oct. 28.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

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