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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Frozen GAAP

What is frozen GAAP in a facility agreement, and why did IFRS 16 make it matter?

ONE OF 416 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Frozen GAAP is a clause in a facility agreement under which the financial covenants are calculated on the accounting standards in force when it was signed, even after those standards change. It mattered most when IFRS 16, adopted in Australia and New Zealand as AASB 16 and NZ IFRS 16, moved most leases onto the balance sheet from 2019, lifting EBITDA and debt with nothing in the business having changed. The borrower then reports covenant figures on the old basis, usually reconciled in each compliance certificate, and many agreements also require the parties to negotiate amended covenants. UK groups adopting the revised FRS 102 from 2026 meet the same question.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// THE FULL PAGE

Frozen GAAP: How a Covenant Survives a New Standard →

The accounts move to the new rules; the covenant stays on the old.

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COVENANTS AND CLAUSES

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