Financial Instruments Puttable at Fair Value

Date recorded:

The Board continued its discussion from December 2005 on the proposed amendments to IAS 32 Financial Instruments: Presentation. At the previous meeting the Board decided that financial instruments puttable at fair value and certain obligations arising on liquidation would be classified as equity if certain conditions were met. Under those conditions, in general, shares, partnership interests, and minority interests puttable at fair value, and shares in limited life entities, would generally be classified as equity. At the February meeting the Board was asked to decide on proposed disclosures.

The staff proposed that four categories of new disclosures be added to IAS 1 and not IFRS 7. The Board agreed to the proposal.

The four proposed categories of new disclosures, and Board decisions on each, are as follows:

Disclosure by limited-life entities

As IAS 1 does not currently require limited-life entities to disclose the fact that they have a limited life, the staff proposed adding an explicit requirement by amending paragraph 126 of IAS 1.

The Board agreed.

Disclosure of reclassifications

The staff proposed that disclosures about the nature, amount, and timing of reclassifications of instruments between liabilities and equity, and the reasons therefor, be added to IAS 1.

No discussion. The Board agreed with the staff proposal.

Capital Disclosures

Staff proposed certain amendments to the capital disclosure requirements in paragraph 124 of IAS 1 so that an entity will disclose enough information about financial instruments puttable at fair value to enable users of financial statements to evaluate the entity's objectives, policies, and processes for managing capital.

The Board generally agreed with the staff proposal, though they asked the staff to do some additional research regarding one of the proposed disclosure items.

Disclosures about fair values

Staff proposed:

  • disclosures about an instrument's fair value disclosures should be presented in a way that permits comparison with the instrument's carrying amount;
  • disclosure of information on how fair value was determined; and
  • additional disclosure items for companies who determine fair value based on a formula.

The Board discussed the cost of compliance against the benefits of the user if requirement was set out as in the proposals.

The Board decided to require the disclosures proposed by the staff, but that those disclosures would be required only in an entity's annual accounts, not in its interim accounts.

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