Dear all

FRS 1 Presentation of Financial Statements: Current/Non-current Classification of a Callable

Term Loan
The IASB IFRS Interpretations Committee has concluded that callable term loans i.e. callable buy the
lender on demand (at any time without cause) should be classified as a current liability even if
scheduled repayment terms extend beyond 12 months..
Such callable term loans contain overriding repayment on demand clause, which gives the lender the
right to demand repayment at any time, at their sole discretion and irrespective of whether a default
event has occurred. An example of such a term is:

The Bank reserves the right to review the banking facility(ies) from time to time. Upon such review,
we will have the right at our sole discretion, notwithstanding any inconsistent provision in this letter
or any other document, to immediately cancel, reduce or vary the banking facility(ies) and all further
utilisation of the banking facility(ies) and/or to demand immediate repayment of all monies and
liabilities owing to us under the banking facility(ies) (whether actual or contingent).
Notwithstanding the aforesaid, the banking facilities are subject to review from time to time and at
any time by the Bank at the Banks absolute discretion. Upon the review of the banking facilities, the
Bank shall have the right at the Banks absolute discretion to vary, modify, terminate, reduce, suspend
or cancel the banking facilities or any of them and/or to demand immediate repayment of all moneys
and liabilities owing to the Bank under the banking facilities (whether actual, contingent or
otherwise). Without limiting the generality of the foregoing, the Bank reserves the right to vary the
terms and conditions, including the interest rate, from time to time at the Banks sole discretion.
Such a term means that the borrowers do not have an unconditional right to defer settlement of the
liabilities for at least twelve months after the reporting period a condition necessary for liabilities to be
classified as non-current under FRS 1. Therefore, callable term loans should be classified as current

liabilities in their entirety, irrespective of the probability that the lenders will exercise the demand
clauses.
What does it mean for us
Please review all terms of banking and other facilities to ensure that they do not contain terms similar
to the one above. If such terms exist, senior members of the engagement term should discuss it with
clients and make adjustments that are necessary. Such adjustments may impact loan covenants,
require us to review the going concern basis in a different light (especially if there are net current
liabilities) and require reclassifications of prior years financial statements