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IFRS 10 and IAS 32 — Puttable instruments that are non-controlling interests

Date recorded:

The IFRS Committee received a request on guidance on the classification, in the consolidated financial statements of the group, of puttable instruments issued by a subsidiary of the reporting entity but are not held, directly or indirectly, by the parent.

In particular, the submitter requested the Committee to clarify whether financial instruments within the scope of paragraphs 16A-16D of IAS 32 Financial Instruments: Presentation (‘puttable instruments’) that are issued by a subsidiary but are not held, directly or indirectly, by the parent should be classified as equity or liability in the consolidated financial statements of the group. In exceptional cases puttable financial instruments are classified as equity instruments if they have all the features set out tin paragraphs 16A and 16B of the standard.

There is a conflict between IFRS 10 Consolidated Financial Statements and IAS 32. Within paragraph 22 of IFRS 10 a non-controlling interests (NCI) is defined as equity in a subsidiary not attributable, directly or indirectly, to a parent, under which a parent shall present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent. In contrast AG29 of IAS 32 states, some types of instruments that impose a contractual obligation on the entity are classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D. Classification in accordance with those paragraphs is an exception to the principles otherwise applied in this Standard to the classification of an instrument. This exception is not extended to the classification of non-controlling interests in the consolidated financial statements. Therefore, instruments classified as equity instruments in accordance with either paragraphs 16A and 16B or paragraphs 16C and 16D in the separate or individual financial statements that are non-controlling interests are classified as liabilities in the consolidated financial statements of the group.

The Committee agreed that puttable instruments that are not held, directly or indirectly, by the parent should be classified as financial liabilities in the consolidated financial statements. The Committee agreed with Staff’s proposal on not to take this to their agenda. The Committee members requested clarification of the wording of the staff proposal which states “issuer of the instrument” rather than the subsidiary, which in the case if the issuer was the reporter and was therefore the parent, the parent would not have to reclassify. Subject to the correction of this error there were no further changes to the agenda decision.

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