Accounting for Warrants that are Classified as Financial Liabilities on Initial Recognition (IAS 32)

Date recorded:


In its March 2021 meeting, the Committee discussed a submission asking whether the issuer reclassifies a warrant, which is classified as a financial liability at initial recognition, as equity when the exercise price is subsequently fixed as specified in the contract. There are three views in practice: View 1—the issuer is prohibited from reclassifying the warrant; View 2—the issuer has an accounting policy choice with regards to reclassifying the warrant; View 3—the issuer is required to reclassify the warrant. The staff concluded that the matter, in isolation, is too narrow to be answered and recommended publishing a tentative agenda decision to explain this. On the other hand, they believe that the broader issues of reclassifying financial instruments are better addressed as part of the Board’s Financial Instruments with Characteristics of Equity (FICE) project. The Committee members generally agreed with these recommendations.

There were eight comment letters received. Most respondents agreed with the staff's recommendations. Two of them were of the view that the requirements in IAS 32 are sufficient to address the fact pattern described.

Staff analysis

Those two respondents were of the view that an entity should reclassify the warrant to equity when the "fixed-to-fixed" condition is met applying IAS 32:16E-16F. However, the staff responded that the criteria in IAS 32:16E-16F are for specific instruments only and represent a limited scope exception (as per IAS 32:96B) that an entity cannot apply those paragraphs to the fact pattern described by analogy.

Staff recommendation

The staff recommended finalising the agenda decision with no change.


None of the Committee members had further comments on the agenda decision and they unanimously supported finalising the agenda decision with no change.

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