Financial Instruments with Characteristics of Equity – International Accounting Standards Board

Date recorded:

At its meeting on February 21-24, 2022, the IASB met to continue its discussions on applying IAS 32 Financial Instruments: Presentation to the classification of financial instruments as financial liabilities or equity. The IASB received an update on the project status. The IASB was not asked to make any decisions. The IASB discussed the classification of a financial instrument with a contractual obligation to deliver cash (or to settle it in such a way that it would be a financial liability) at the discretion of the issuer’s shareholders. The IASB tentatively decided to explore a factors-based approach to help an entity apply its judgement when classifying these types of financial instruments as financial liabilities or as equity. Such an approach would provide examples of potential factors for an entity to consider when assessing whether a decision of shareholders is treated as a decision of the entity. This assessment is needed to determine whether an entity has an unconditional right to avoid delivering cash (or settling a financial instrument in such a way that it would be a financial liability). The IASB will discuss other topics set out in the project plan at its future meetings.

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