The Financial Accounting Standards Board has issued a pair of proposed accounting standards updates on the classification of debt in a classified balance sheet (current versus noncurrent), and changes to the disclosure requirements for inventory under the Disclosure Framework.

accounting standards

The first proposed update aims to improve financial reporting by simplifying FASB’s existing guidance for deciding whether debt should be classified as current or noncurrent on a classified balance sheet. It would replace the current fact-specific guidance with an overall principle for debt classification tailored to a borrower’s contractual rights and obligations as of the reporting date.

Under the proposal, a borrower would continue to classify its debt as noncurrent 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.

The proposed changes could lead to a shift in the classification of certain debt arrangements between noncurrent liabilities and current liabilities as compared with current balance sheets in two main ways:

• Short-term debt refinanced on a long-term basis after the balance sheet date would not be classified anymore as a noncurrent liability.

• Companies with debt that includes subjective acceleration clauses would not be required anymore to assess the likelihood of acceleration of the due date when determining whether the debt is a noncurrent or current liability.

FASB is asking stakeholders to weigh in with comments on the proposal by May 5, 2017.

Inventory Disclosure

The other proposed accounting standards update on inventory disclosure is part of FASB’s broader Disclosure Framework project to improve the effectiveness of disclosures in notes to financial statements by communicating the information most important to users of financial statements more clearly.

The proposal would increase inventory disclosure requirements for all reporting organizations, including:

• Changes in inventory not related to the ordinary course of manufacturing, purchasing or selling inventory;

• Inventory disaggregated by major components;

• Inventory disaggregated by measurement basis; and

• Qualitative description of costs capitalized.

For companies and other organizations that use the retail inventory method to measure inventory, the proposed standards update provides qualitative and quantitative disclosure of the critical assumptions used to measure that inventory. For companies and organizations applying the last-in, first-out, or LIFO, method of measuring inventory, the proposed update includes disclosure of the excess of replacement cost or current cost over the LIFO inventory amount and the effect on net income of any LIFO liquidations.

In addition, for organizations subject to the reporting requirements in Topic 280, Segment Reporting, in FASB’s accounting standards codification, there’s both 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 in an organization.

Inventory is one of four areas where FASB said it is evaluating improvements to existing disclosure requirements. Other areas it is examining include an employer’s disclosure of defined benefit plans, fair value and income taxes.

To get more feedback on the proposal, FASB plans to hold a public roundtable meeting March 17, 2017. FASB will decide on the effective dates for the final accounting standards updates after reviews the comments it receives during the comment periods and from its public roundtable meetings.

Michael Cohn

Michael Cohn, editor-in-chief of, has been covering business and technology for a variety of publications since 1985.