Special Purpose Acquisition Companies (SPAC): Classification of Public Shares as Financial Liabilities or Equity (IAS 32)

Date recorded:


In its March 2022 meeting, the Committee discussed a submission asking whether a SPAC classifies public shares it issues as financial liabilities or equity instruments applying IAS 32. In the fact pattern described, a SPAC, a listed entity established solely for the purpose of acquiring a target company to be identified in the future, issues two classes of shares: founder shares (Class A) and public shares (Class B). The Class B shareholders (a) individually have the right to demand a reimbursement of their shares on approval by the SPAC’s shareholders of the acquisition of a target entity and (b) are reimbursed in the event of the SPAC’s liquidation. The SPAC is liquidated if no target entity is acquired within a specified period of time and the SPAC’s shareholders do not vote to extend the SPAC’s life. A decision to extend the SPAC’s life is approved by either (i) two-thirds of the shareholders; or (ii) two-thirds of the Class A shareholders and two-thirds of the Class B shareholders independently.

The submitter sought clarity on whether a SPAC classifies the Class B shares as financial liabilities or equity instruments applying IAS 32:16(a)(i). Specifically, the submitter asked about the effect of two features on the classification of the Class B shares: Feature 1: the effect of the Class B shareholders’ right to demand a reimbursement of their shares (in the event of the acquisition of a company) on the existence of an unconditional right to avoid delivering cash or another financial asset; and Feature 2: the effect of the terms and conditions of the SPAC’s liquidation after a specified period of time on the classification of the Class B shares.

The Committee concluded that the matter described in the submission is, in isolation, too narrow for the IASB or the Committee to address in a cost-effective manner. Instead, the IASB should consider the matter as part of its broader discussions on the FICE project.

9 comment letters were received. All respondents agreed with the Committee's decision not to add the matter to its standard-setting agenda.

Staff recommendation

The staff recommended finalising the agenda decision as published in IFRIC Update in March 2022 with some changes to the drafting.

Committee discussion

Committee members generally agreed with the drafting of the agenda decision and its finalisation. One Committee member raised the concern that the matter is relevant when the SPAC’s life could be extended infinitely beyond a specified period. If not, the redemption right, not extendable indefinitely, would result in the classification of the Class B shares as financial liabilities. The staff agreed and promised to clarify that such extensive right could be extended indefinitely.

Committee decision

The Committee decided, by a unanimous vote, to finalise the agenda decision.

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