What it is
Debt classification turns on the facts at the balance sheet date and on what happened before the statements were issued. A covenant violation that makes the debt callable, a waiver, a refinancing signed after year end and a subjective acceleration clause each change the answer. This memo walks those questions in order and ends with one classification conclusion.
The memo includes a covenant test table, a waiver log, a refinancing section, a modification versus extinguishment table, an issuance cost rollforward and a disclosure list. Thresholds and look-forward periods are blanks you fill from the loan agreement and your policy.
When to use it
- At each balance sheet date for any instrument with financial covenants or a maturity inside the next year.
- When a covenant is violated, waived or amended, or when debt is refinanced after year end.
- When loan terms change during the year and you need the modification or extinguishment conclusion.
What’s inside
- Classification path from contractual maturities to the current and noncurrent split
- Covenant test table with definitions, required level, actual result and calculation reference
- Violation and waiver log with the period each waiver covers
- Refinancing after the balance sheet date and subjective acceleration clause sections
- Modification test, issuance cost rollforward and draft disclosure list
Standard cited
This template follows ASC 470 / ASC 835. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
When is long-term debt shown as current?
When the lender can call it at the balance sheet date because of a covenant violation and no qualifying waiver or refinancing exists, and when principal is contractually due within one year. A waiver obtained before issuance that covers the required period can keep the debt noncurrent.
What counts as a refinancing for classification?
Short-term debt repaid with long-term financing after the balance sheet date and before issuance, or a financing agreement signed in that window that meets the conditions in ASC 470. The memo section records each condition and the evidence.
Where do debt issuance costs go?
Costs on term debt are presented as a reduction of the debt balance under ASC 835. Your policy sets the presentation for revolving facilities. The memo carries a rollforward for each.
Does this replace the going concern evaluation?
No. A violation that threatens liquidity feeds the going concern evaluation. The memo conclusion cross-references it.
Related templates
- Debt Covenant Compliance Workbook
- Debt and Interest Rollforward Schedule
- Disclosure Checklist: Debt (ASC 470)
- Going Concern Evaluation Memo (AU-C 570 / ASC 205-40)
Last updated 11/05/2026. All free templates.