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IAS 32 — Classification of an instrument that is mandatorily convertible into a variable number of shares, subject to a cap and floor

Date recorded:

The project manager explained that the instrument in this issue is the same as in paper 8 (i.e. mandatorily convertible into a variable amount of shares at maturity, subject to a cap and floor) but without the early settlement option.  Question, as above, is how this instrument is classified.

The staff’s conclusion is that the instrument is a liability in its entirety (e.g. the cap/floor feature is not separated). The staff recommended not to add this issue to the agenda of the IFRS IC. They think that the appropriate accounting can be derived from the Standards without need for further guidance.

One Committee member supports the staff’s recommendation but would like to have a better explanation in the tentative agenda decision why the cap/floor feature should not be separated.

Another Committee member agreed with that and said that it should in general be better explained why other views are not acceptable.

The Committee tentatively decided not to add this issue to the agenda. The staff was advised to add the discussed points to the agenda decision but carefully consider what the words might mean to the practice to avoid unintended consequences.

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.