At its meeting on January 24, 2018, the IASB discussed an issue raised on the pre-ballot draft of the FICE Discussion Paper. The Board discussed whether such an instrument could be analysed as an equity host and an embedded derivative asset if the issuer held the option to settle the claim. In cases where the entity does not have the option to limit the amount of a claim to the entity’s available economic resources, the instrument would be analysed as a liability host and an embedded derivative. This position is consistent with the Board’s preliminary view on contingent events.

The Board tentatively decided: (i) before proposing any particular accounting requirements, to raise the issue in the Discussion Paper and seek feedback on whether separating embedded derivatives may be a potential solution; and (ii) to raise a question in the Discussion Paper about whether and how the attribution requirements may help provide information about complex payoffs if the embedded derivative is not separated from the equity host contract.

Review the IASB Update and podcast on the IASB's Web site.