Financial Instruments with Characteristics of Equity

Date recorded:

The Board considered the impact of the decisions made on Classification of Rights Issues on this project. The staff pointed out that the approved amendments to IAS 32 are inconsistent with the proposed classification approach. The Board decided to develop a new principle in the classification approach that would allow including some share-settled instruments to be classified as equity. Some Board members clearly did not feel comfortable with such outcome as they felt it was inconsistent with the principles in the approach. Some Board members noted that the staff would have to ensure that only transactions with shareholders acting in their capacity as shareholders were included in the principle to be developed. The staff pledged to provide additional analysis for October Board meeting.

The Board then discussed the details of the classification approach as presented by the staff (without reflecting the new principle). The staff presented a summary of the approach with examples reflecting the principles. The Board agreed with the basic idea behind those principles, which reflected and further articulated tentative decisions already taken by the Board.

The staff noted that accounting for share-based payments (and accounting for them until they vest) and subsidiaries' instruments in consolidation would have to be addressed on a next meeting. The staff also noted that the highlighted issue of classification of preferred shares that are mandatorily convertible to equity instruments may be solved by the new principle and would be addressed in that context. Detailed examples reflecting the changes would also be provided for the next meeting.

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