Currently, IAS 1.39.d states that an entity shall classify a liability as current when it does not have unconditional the right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Effective 1 January 2023, IAS 1.39.d has been amended to say that an entity shall classify a liability as current when it does not have the right at the end of the reporting period to defer settlement of the liability for at least twelve months after reporting period.

The amendment means that if the company has at year-end a right to defer liability payments for more than 12 months, the portion that may be deferred is classified as a non-current.

The portion classified as non-current is dependent on the company’s right of deferral regardless of the company’s intention to exercise the right or if the company settled the liability in advance after year-end.

The right to defer payments for more than 12 months only exists if all conditions to defer are met at the reporting date. If the deferral right is contingent on complying with specific terms with the lender, a test of compliance will need to be performed at year end, regardless if this is required by the lender at that time, to determine if the deferral right exists.

All applications of the amended requirements for IAS 1.39.d need to be applied retrospectively and earlier adoption is permitted.