On July 29, 2015, the Financial Accounting Standards Board (FASB), which establishes financial accounting and reporting standards in the U.S., proposed to simplify rules about debt classification. This proposed change would better align U.S. GAAP with the International Accounting Standards.
Under the existing U.S. GAAP guidelines, debt classification is based on specific rules depending on the type of debt arrangement. Different rules may be applied for a term-loan with covenants than a revolving credit or other specialized types of loans. These guidelines do not clearly address all scenarios.
The goal of the proposed change is to simplify the determination of debt classification. Under the proposed FASB plan, debt that will be settled more than a year from the financial statement date, or that can be deferred beyond that year, will be identified as non-current debt. The planned amendment would also offer a simplified definition of a debt arrangement.
If you have any concerns about this proposal, we would be happy to discuss them with you and assist in directing your concerns to the FASB. As any further updates on this proposal is known, we will be sure to keep you informed.
If you have any questions about this proposal, contact Maulik Khatadia at (317) 613-7860 or email [email protected].