FASB mulls tightening of current liabilities definition, by Glenn Cheney in April of 2004:
This article addresses the Financial Accounting Standards Board (FASB) concern with converging U.S. standards to international accounting standards by defining current liabilities.
The proposal is aimed towards properly defining current liabilities and requiring the use of a company’s balance sheet date as the cutoff date for determining whether a liability is current. The “tightened” definition avoids exceptional situations in which a current liability can be classified as non-current, and non-current liabilities can be considered current.
Cheney discusses the negative implications that the new proposal may have on small business accounting, for no reason other than the technical difficulty of preparing year-end financial statements, small companies can find their long-term debt suddenly converted to a current liability – a situation that they may not recognize until after their audit has been performed.
In comparison to large firms, Cheney feels that a large firm will likely see impending expiration of a debt covenant, or of a long-term debt, when it converts to current liability at year end. This is mainly accredited to the fact that many large companies issue quarterly financials throughout the year.
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