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IAS 39 — Debt to equity swap in a restructuring

Date recorded:

The IFRIC held a special meeting by teleconference to finalise and approve the consensus on the draft interpretation of IAS 39 regarding debt to equity swap. Thirteen members of the IFRIC were present on the call.

The staff clarified two issues regarding changes in the draft consensus and basis for conclusions based on suggestions of some IFRIC members.

First of all, the staff proposed providing additional discussion in the draft basis for conclusions regarding the relationship between extinguishing the financial liability and issuance of new shares, and substantial modification of the terms as required by IAS 39.40.

Moreover, the staff proposed that the [draft] Interpretation should apply retrospectively, from the beginning of the earliest comparative period. This relief from full retrospective application should facilitate transition.

The Chairman then summarised the consensus reached, which reaffirmed the conclusions reached on the July IFRIC meeting.

  • issuing of equity instruments is a form of consideration paid (IAS 39.41);
  • in the debt to equity swap the liability is extinguished (IAS 39.39);
  • new shares issued should be measured at the fair value of the liability extinguished or equity instrument issues whichever is more reliably determinable (IAS 39.41);
  • when only part of the liability is extinguished, and the terms of the instrument are not substantially modified, the remaining part of the liability shall not be re-measured. If the terms are substantially modified, then the original financial liability is extinguished and new financial liability is recognised together with issued equity instrument (IAS 39.40);
  • The profit or loss arising on the debt to equity swap shall be disclosed in the statement of the comprehensive income or in the notes.

The IFRIC confirmed the consensus, subject to minor editorial comments. No present member of the IFRIC dissented. The draft interpretation is to be issued in August with 60 days comment period. Re-deliberations are to take place on the November IFRIC meeting. The staff noted that they already informally informed the Board members of the consensus reached by the IFRIC.

No member of the Board opposes the consensus.