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Financial instruments with characteristics of equity

Date recorded:

Attribution of profit or loss and other comprehensive income to derivative equity claims — Agenda paper 5


The Board considered in April 2016 potential approaches to the attribution of profit or loss and other comprehensive income to classes of equity claims other than ordinary shares. See Agenda Paper 5B of April 2016 for detailed background information. At that meeting the Board agreed to use the requirements in IAS 33 Earnings per Share for the attribution for non-derivative equity claims.

In April, the Board also discussed three approaches for derivative equity claims:

  • Approach A — No attribution for derivatives: Continue to provide information about the effect of derivative equity claims through diluted earnings per share and other disclosures.
  • Approach B — Full fair value approach: Attribute total profit or loss and other comprehensive income to derivatives based on changes in their fair value. Concerns were raised that this approach amplifies the consequences of partial recognition and mixed measurement.
  • Approach C — Modified fair value approach: Attribute total profit or loss and other comprehensive income to derivatives based on changes in the relative fair values of derivatives to ordinary shares.

The Board suggested an alternative way to calculate the attribution for derivatives and asked the staff to assess that approach along with those noted above, and recommend how to narrow the set of alternatives.   

In this meeting, the Board continued those discussions and was asked to give a preliminary view on which proposals to develop further.   

Staff analysis

The modified fair value approach (Approach C) analysed by the staff in April 2016 was based on period-end amounts. The staff was asked to consider the implications of using average relative fair value during the period of attribution. An example of this approach was presented as Approach D in this agenda paper.

The staff considered that approaches C and D alleviated the amplification of the consequences of partial recognition and mixed measurement inherent in the full fair value approach (Approach B).  However, approach C would be more costly to apply than Approach B. Approach C would provide new information that would supplement the diluted earnings per share calculation. However it would be difficult to justify the costs of calculating both the Approach D attribution and the diluted earnings per share given that they are very similar.

The staff indicated that the Board did not support approaches C or D, those approaches were not going to be discussed in detail in the Discussion Paper.


The Board did not select any approach as being preferred ahead of the others analysed in the paper. 

The staff will continue the analysis and there will be more discussions at future meetings.


There was an extensive debate on the approaches presented by the staff. However, there were mixed views. There were significant concerns about the interaction of any approach with the existing requirements of IAS 33. In most cases, Board members indicated that they were unable to elect any approach without understanding the implications for IAS 33. Board members also indicated that they would expect the ED to explore not only on each approach but also on the interaction with IAS 33.

The staff indicated that the scope of the project was not to analyse IAS 33, although they understood the Board’s concerns.

There were concerns about the benefits of moving to the approaches proposed by the staff. Many Board members indicated that they were unable to understand the benefits of the additional information that would be required.

In terms of the future Discussion Paper, many Board members said that they would prefer that all approaches be discussed. The Board members indicated that they would be able to obtain more feedback on how to select the best approach.  Another common concern was that the key focus should be the classification and that presentation should follow accordingly. As regards approach D, there was a concern about is feasibility in terms of capturing the information appropriately. Another concern raised was that current information on EPS lacked information on the year-end position.

There were no specific concerns raised about the other approaches other than those presented by the staff.

The Chairman concluded the discussion indicating that the staff should continue to work in the light of the feedback provided by Board members. 

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