Newsletter explaining ED on puttable shares
16 Jul 2006
In June 2006, the IASB published an exposure draft on Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation.
The proposals would amend IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements. Deloitte has published a (PDF 58k) explaining the proposed changes. The ED would require:
- An obligation to redeem or repurchase a financial instrument puttable at fair value would be classified as equity provided that specified criteria are met, particularly that all financial instruments in the most subordinated class of instruments with a claim to the assets of the entity are financial instruments puttable at fair value.
- An instrument that imposes an obligation to deliver to another entity a pro rata share of the net assets of the entity upon its liquidation to be classified as equity, provided specified criteria are met. Thus, for example, ordinary shares of limited life entities and partners' interests in a partnership that must liquidate upon exit of a partner (eg on retirement or death) would be equity.