IAS 39 — Holder’s accounting for exchange of equity instruments

Date recorded:

The project manager introduced the paper based on a request for clarification received by the IC for the accounting by the holder of equity instruments in the circumstance in which the issuer exchanges its original equity instruments for new equity instruments in the same organisation but with different terms. Specifically, this transaction involved equity instruments issued by a central bank and the exchange of the instruments was imposed on the holders as a consequence of a change in legislation.

The accounting question asked was whether the holders of the equity instruments should account for this exchange under IAS 39 Financial Instruments: Recognition and Measurement as a derecognition of the original equity instruments and the recognition of new instruments. The staff has concluded that the agenda criteria was not met because the fact pattern was not common and no significant diversity in practice could be observed.

The staff also noted that the issue would be less relevant by 2018, the expected effective date of the final version of IFRS 9 Financial Instruments, due to be issued in 2014. This was because, unlike IAS 39, under IFRS 9 gains or losses on an equity financial asset would either be recognised in profit or loss immediately or, if recognised in other comprehensive income, would not be reclassified to profit or loss on derecognition of the asset.


Before opening the discussion, the Chairman clarified that the staff have carried out outreach activities to identify whether there were more cases of government control entities doing share exchanges; not many responses were received and accordingly, they have not performed a technical analysis.

One IC member asked whether it was necessary to consider the fact that this transaction was with government controlled entities to be a key point in the analysis. The project manager responded that whenever there was a share exchange, there was something driving it, in this case it was forced by legislation. The IC member added that by doing the analysis in such a narrow focus, the answer would always be that the issue was not pervasive. The project manager further indicated that if they were to analyse the case in a broad sense they could be opening up new issues on derecognition.

Another IC member indicated that he agreed with the staff recommendation, and he suggested that it needed clarification from the Board. The only existing guidance was for debt exchanges and he believed that it was not appropriate for equity exchanges. Another IC member pointed that that the issue was too broad but the fact pattern too narrow.   Other IC members supported the idea of obtaining feedback from the Board. Some IC members also pointed out that this issue would not be completely solved by IFRS 9 because there was guidance for derecognition of liabilities but not for equity instruments. Another IC member asked why the draft for the agenda decision did not include the analysis as to how the transaction should be treated as was detailed in every agenda decision. The Chairman responded that in this case they had not done the technical analysis. One IC staff indicated that they analysed whether there was diversity in practice and they found out that in all cases the gain was recognised.


The Chairman concluded that according to the discussion the staff recommendation not to add this issue to the agenda was approved.

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