‘Current Liability’ Rules Could Change Under FASB Plan
The Financial Accounting Standards Board (FASB) is considering a stricter definition of a "current liability," in a proposal to make U.S. rules more similar to international standards.
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.
Current liabilities are obligations due within one year, while long-term, or noncurrent, obligations are payable over a longer time period. Investors and analysts often divide a company’s current assets by current liabilities to get a sense of the company’s liquidity.
The nature of liabilities could change, however, when a company refinances its short-term debt. When that happens, FASB believes companies should take the approach required by the International Accounting Standards Board (IASB), which says that liabilities would have to be classified as "current," as long as the refinancing is completed after the balance-sheet date.
Generally Accepted Accounting Principles currently allow the obligations to be booked as "noncurrent," even if the refinancing is completed after the balance-sheet date but before the date the financial statements are issued.
FASB and IASB have been working together since October 2002 to bring the U.S. and international standards in line with each other, with the idea that investors could more easily compare companies in different countries.