IASB June 2009

The Board published the discussion paper Financial Instruments with Characteristics of Equity in February 2008. In October the Board decided to begin deliberations using the principles underlying the perpetual and basic ownership approaches. At this meeting the Board discussed measurement requirements for free-standing equity, liability and asset instruments and equity hybrid instruments (instruments that are separated into an equity component and a liability or asset component).

The Board made the following tentative decisions:

Transaction costs

• An entity would recognise as expense all transaction costs or fees arising from the issue of an equity instrument or equity hybrid instrument.
  Initial measurement of a freestanding equity instrument
• An entity would initially measure a free-standing equity instrument at its transaction price. The transaction price does not include transaction costs or fees.
  Initial measurement of the components of a separated equity hybrid instrument
• An entity would initially measure components of a separated equity hybrid instrument as follows: The liability or asset component would be measured at fair value as if it were a free-standing liability or asset. The remainder of the transaction price for the hybrid instrument as a whole would be allocated to the equity component.

Subsequent measurement of a free-standing equity instrument and an equity hybrid instrument

• An entity would not remeasure a free-standing equity instrument or equity component of a hybrid instrument that the entity cannot be required to redeem.
• At each reporting date, an entity would remeasure at current redemption value an equity instrument or a separated equity component of a hybrid instrument that has a redemption requirement. The current redemption value is the amount that would have resulted from applying the redemption formula as if redemption was required at the measurement date. Changes in current redemption value would be presented as a transfer between the redeemable equity instrument or component and another equity account. 
• An entity would remeasure the liability or asset component of a separated hybrid instrument on the basis of the requirements of IFRSs that would apply if it were a freestanding instrument.
  Measurement of freestanding liabilities and assets
• An entity would present a physically settled forward contract and written put options on a net basis in the statement of financial position and remeasure those instruments at fair value. Changes in fair value would be recognised in profit or loss.

Next steps 

The Board will discuss how to display in the statement of comprehensive income changes in the fair value of a non-equity instrument.