Accounting & Tax

FASB Getting Strict on ”Current Liability”

The definition being considered is much like that of the IASB.
Stephen TaubFebruary 10, 2004

In another matter that could impact the move toward one international accounting standard, the Financial Accounting Standards Board is considering a stricter definition of a “current liability,” which would bring U.S. rules closer to international standards, according to accountingweb.com.

The proposal, expected to be released within a few months, would require companies to use the balance-sheet date — not the date they issue their financial statements — as the only cutoff date for determining whether a liability is current or long-term, the Web site elaborates.

Current liabilities are obligations due within one year, while long-term, or noncurrent, obligations are payable over a longer time period.

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The issue would come into play, for example, when a company refinanced its short-term debt. Accountingweb.com notes that under the rules of the International Accounting Standards Board, the liabilities would have to be classified as “current” if the refinancing were completed after the balance-sheet date. Today, under U.S. generally accepted accounting principles, the obligations could be booked as “non-current” even if the refinancing were completed after the balance-sheet date, provided it took place before the date the financial statements were issued.