FASB Issues Proposed Changes on Balance Sheet Debt Classification and Disclosure Requirements for Inventory

March 2017

The US Financial Accounting Standards Board (FASB) has issued the following proposed Accounting Standards Updates (ASUs):

  • Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent), with comments due by 5 May 2017
  • Inventory (Topic 330): Disclosure Framework - Changes to the Disclosure Requirements for Inventory, with comments due by 13 March 2017.

Balance Sheet Classification of Debt

The FASB intends the proposal on balance sheet classification of debt to simplify guidance used to determine whether debt should be classified as current or non-current in a classified balance sheet. The proposed amendments would replace the existing, fact-specific guidance with an encompassing and cohesive principle for debt classification that focuses on a borrower’s contractual rights and obligations as of the reporting date.

Under the proposal, a borrower would continue to classify its debt as non-current when a violation of a debt covenant has been waived, if a borrower receives a waiver before the financial statements are issued (or are available to be issued), and the waiver meets certain conditions.

Inventory Disclosures

This proposal would increase inventory disclosure requirements for all reporting organisations. New disclosure requirements would include:

  • Changes in inventory that are not related to the ordinary course of manufacturing, purchasing, or selling inventory
  • Inventory disaggregated by major components
  • Inventory disaggregated by measurement basis
  • Qualitative description of costs capitalised.

The proposed ASU also includes qualitative and quantitative disclosure requirements of the critical assumptions used to measure inventory for companies and other organisations applying the retail inventory method of measuring inventory. For companies and organisations applying the last-in, first-out (LIFO) method of measuring inventory, the proposal includes disclosure requirements of the excess of replacement cost or current cost over the LIFO inventory amount and the effect on net income of any LIFO liquidations.

For organisations subject to segment reporting under FASB Accounting Standards Codification Topic 280, there is an interim and annual requirement to disclose inventory in total and by major component for each reportable segment if that information is regularly reviewed by the chief operating decision maker.

The proposed ASU on Simplifying the Classification of Debt is available at the FASB website on this link.

The proposed ASU on Inventory is available at the FASB website on this link.

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