IASB publishes Exposure Draft Financial Instruments with Characteristics of Equity

IASB publishes Exposure Draft Financial Instruments with Characteristics of Equity

The IASB has published Exposure Draft Financial Instruments with Characteristics of Equity which proposes to amend IAS 32 Financial Instruments: Presentation, IFRS 7 Financial Instruments: Disclosures, and IAS 1 Presentation of Financial Statements.
The IASB proposes amendments to IAS 32 to clarify:
  1. the effects of relevant laws or regulations (such as statutory or regulatory requirements applicable to a financial instrument) on the classification of financial instruments;
  2. the ‘fixed-for-fixed’ condition in IAS 32.16(b)(ii) for classifying a derivative that will or may be settled in an issuer’s own equity instruments;
  3. the requirements of IAS 32.23 for classifying financial instruments containing an obligation for an entity to purchase its own equity instruments;
  4. the requirements in IAS 32.25 and IAS 32.28 for classifying financial instruments with contingent settlement provisions;
  5. the effect of shareholder discretion on the classification of financial instruments; and
  6. the circumstances in which a financial instrument (or a component of it) is reclassified as a financial liability or an equity instrument after initial recognition.
The IASB proposes amendments to the objective and scope of IFRS 7 Financial Instruments: Disclosures and other amendments to the Standard to improve the information disclosed about:
  1. the nature and priority of claims against an entity arising from financial liabilities and equity instruments within the scope of IAS 32;
  2. the terms and conditions of financial instruments, including those with both financial liability and equity characteristics;
  3. compound financial instruments;
  4. the potential dilution of ordinary shares;
  5. reclassifications of financial liabilities and equity instruments;
  6. instruments containing obligations to purchase an entity’s own equity instruments; and
  7. financial liabilities containing contractual obligations to pay amounts based on an entity’s performance or changes in the entity’s net assets.
The IASB also proposes amendments to IAS 1 Presentation of Financial Statements to require an entity to present additional information about amounts attributable to ordinary shareholders. These proposed amendments affect an entity’s statement of financial position, statement(s) of financial performance and statement of changes in equity.
The Exposure Draft is open for comments until 29 March 2024 and may be accessed here.
The IASB has also released a Snapshot of the proposed amendments, which may be accessed here.