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Exposure Draft 2015/1 Classification of liabilities (Proposed amendments to IAS 1)
Jun 09, 2015

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Dear Sir

Exposure Draft 2015/1 Classification of liabilities (Proposed amendments to IAS 1)

Crowe Horwath International is pleased to respond to the International Accounting Standards Board Exposure Draft 2015/1 Classification of liabilities (Proposed amendments to IAS 1).

Our detailed responses are below. We welcome the proposed amendments, as they are sensible clarifications that will assist with the understanding and application of the Standard.

Question 1-Classification based on the entity's rights at the end of the reporting period

The IASB proposes clarifying that the classification of liabilities as either current or noncurrent should be based on the entity's rights at the end of the reporting period. To make that clear, the IASB proposes:

  1. (a) replacing 'discretion' in paragraph 73 of the Standard with 'right' to align it with the requirements of paragraph 69(d) of the Standard;
  2. (b) making it explicit in paragraphs 69(d) and 73 of the Standard that only rights in place at the reporting date should affect this classification of a liability; and
  3. (c) deleting 'unconditional' from paragraph 69(d) of the Standard so that 'an unconditional right' is replaced by 'a right'.

Do you agree with the proposed amendments? Why or why not?

We agree with the proposed amendments. The proposed amendment leads to a clarification of the classification provisions. The current wording in IAS 1.73 is not in line with the definition of a current liability (IAS 1.69 (d)) and therefore the replacement of the word "Discretion" in IAS 1.73 with the legal term 'right' reduces the room for interpretation and 2 therefore enhances the practical application of IAS 1 and enhances comparability amongst financial statements.

Question 2-Linking settlement with the outflow of resources

The IASB proposes making clear the link between the settlement of the liability and the outflow of resources from the entity by adding 'by the transfer to the counterparty of cash, equity instruments, other assets or services' to paragraph 69 of the Standard.

Do you agree with that proposal? Why or why not?

We don't agree with the above proposal, because we believe that a change to the current wording could lead to confusion if a current liability is in fact settled without transferring cash or other assets or services to a counterparty (e.g. in an insolvency situation). It is understood, that almost all of the current liabilities are settled through payment or giving up other assets, but may be not all. So, there are merits, if the currently used, more principles based approach in IAS 1.69 (a) is maintained.

Question 3-Transition arrangements

The IASB proposes that the proposed amendments should be applied retrospectively. Do you agree with that proposal? Why or why not?

We agree. We believe that the preparation efforts to apply the changes retrospectively are rather small and outweigh the benefits of reducing existing inconsistencies and enhance comparability.

We look forward to seeing the progression of the proposed amendments.

Yours faithfully
David Chitty
International Accounting and Audit Director