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Current or non-current liability

AASB 101 can create issues in relation to financial agreements

The Centro case referred to above arose from misclassification of debt liabilities. Accounting standard AASB 101 has four conditions which each require an item to be classified as current. The fourth is where an entity does not have the legal right to defer settlement beyond twelve months.

This can create issues in relation to financial agreements. Judgement may need to be exercised on the meaning of terms and conditions. It is important that the detail in clauses in agreements be reviewed as a standard part of financial statement preparation. As the agreements may not always be clear, it may be necessary to obtain advice. Common issues include:

• The meaning of “material adverse events” which gives the lender the right to immediate repayment;
• The consequences of “facility review” clauses”;
• The ability to avoid “illegal acts” clauses; and
• Which clauses require the bank to have reasonable grounds and which automatically apply.

	Martin Fensome Audit and Assurance T:+61 3 9018 4666

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