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IAS 32 — Debt/equity classification of instruments with obligation to deliver cash at the discretion of shareholders

Date recorded:

The IFRIC discussed the issue whether preference shares should be classified as a financial liability or as equity when it has a contractual obligation to deliver cash to the holder at the discretion of the issuer's shareholders.

The IFRIC considered several situations when preference shares had been issued with terms that would require classification as an equity instrument in accordance with IAS 32 Financial Instruments: Presentation, prior to consideration of the shareholders discretion.

The IFRIC agreed with the staff analysis that considered broader issues including distinction between the reporting entity and its shareholders, the extent to which a reporting entity could control the actions of its owners, and previous IFRIC discussions on similar issues.

Because the Board is working on a project on Financial Instruments with Characteristics of Equity (FICE), the IFRIC agreed not to add the issue to its agenda. Several IFRIC members noted that answers on this question would result from the interaction of the FICE project, the Common Control Transactions project, and the Reporting Entity chapter of the Conceptual Framework. The IFRIC noted that it was possible that this particular issue would not be addressed directly by the FICE project, but given the fact that it would change the setting and conditions of the request, the IFRIC asked the staff to consider this particular issue in the FICE and Common Control projects.

Consequently, the IFRIC agreed not to add the issue to the agenda.

Correction list for hyphenation

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