Analysis of IASB Liabilities Classification Amendment Proposal

This report presents an analysis of the International Accounting Standards Board (IASB) proposal regarding the classification of liabilities. The report focuses on the proposed amendments to IAS 1, specifically addressing the clarification of liability settlement and the use of equity instruments. The author, representing the Institute of Certified Public Accountants in Israel, expresses concerns about the potential contradiction between the proposed paragraph and paragraph 69(d) of the Standard. The report emphasizes the importance of considering the entity's resource outflow when classifying liabilities and suggests clarifying the meaning of 'transfer of equity instruments to the counterparty.' The report also highlights the need for consistency in the classification of current and non-current liabilities, especially concerning the use of equity instruments for settlement. The author believes that the current requirement in paragraph 69(d) is appropriate and that the proposed changes should not contradict it.

1906/37213
April 14, 2015
International Accounting Standards Board
30 Cannon Street
London EC4M6XH
United Kingdom
Dear Sir/Madam,
Re: Exposure Draft – Classification of Liabilities (proposed amendments to
IAS 1)
We appreciate the opportunity to respond to the Exposure Draft "Classification of
Liabilities (proposed amendments to IAS 1)" issued by the International Accounting
Standards Board (IASB). This response represents the views of the Institute of Certified
Public Accountants in Israel.
Question 2
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?
Response
We believe that the proposed clarification may result in an apparent contradiction
between:
(1) the proposed additional paragraph, which states that a transfer of equity
instruments to the counterparty that results in the extinguishment of the liability
is considered a settlement of a liability for the purposes of classification as
current or non-current; and

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(2) paragraph 69(d) which states that 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.
We believe that the IASB should resolve this apparent inconsistency, so that the
requirement mentioned in (2) above will remain untouched. In our opinion, the
classification of a liability as current or non-current should be affected by the entity's use
of its resources in order to settle the liability (i.e., does it represent an outflow of
resources from the entity), and hence the requirement in paragraph 69(d) is appropriate.
If the notion "transfer of equity instruments to the counterparty…" means a third party's
equity instruments (held as assets by the reporting entity) it should be explicitly phrased
as such.
Sincerely yours
Arnon Ratzkovsky
Chair of the Financial Reporting Standards
Committee
Copy:
David Goldberg, President of the Institute of Certified Public Accountants in Israel