This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

Financial instruments with characteristics of equity

Date recorded:

The Technical Manager opened the session by introducing the agenda paper. The staff had been looking into the underlying rationale of the distinction between liabilities and equity used in IAS 32. They had also tried to identify other ways of distinguishing between claims against an entity. To do this, the staff had examined features of claims. They determined that features were relevant if they had the potential to affect the prospects for future cash flows. The agenda paper illustrated how financial statements provided information about relevant features and how claims could be measured, i.e. residual measurement vs. direct measurement. The paper also touched on conditions and contingencies but the technical manager advised that this would be discussed in detail in a session on derivatives.

One Board member said that not only was measurement relevant but classification also. She said that when thinking about obligations to transfer a variable number of shares the staff should bear in mind that own shares were not a liability.

A Board member had a question on the staff’s conclusion that the potential to affect the prospects for future cash flows made a feature relevant. He asked whether the cash flows of the instrument or the cash flows of the entity were meant. The technical manager confirmed that they had had the cash flows of the entity in mind since the features of one claim could affect other claims. For users, the cash flows expected to be received from the entity would be relevant.  Claim holders should be informed about the amount they were entitled to and should be able to determine what the net risk was. In addition, information about priority of claims should be provided.

One Board member said that features that shifted amounts between holders of claims should also be relevant even if they did not affect the cash flows of the entity in total.

No decisions were taken.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.