Our letter acknowledges that the requirement in IAS 32 that a derivative is an equity instrument only if it will be settled by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments (the 'fixed for fixed' criterion) is a 'bright line rule that lacks a clear conceptual basis' and creates practice problems.

Nonetheless, we do not think the IASB should deal with rights issues in isolation, because it would create inconsistencies with the accounting for other derivatives. Instead, we recommend that the IASB should take this opportunity to address the 'fixed for fixed' criterion in its entirety on an accelerated basis. Specifically, the IASB should develop a model that has a clear principle for when a derivative contract that will or may be settled through the delivery of the issuer's own equity instruments can qualify for equity classification.