IAS 32 Financial Instruments: Presentation

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IAS 32 specifies presentation for financial instruments. The recognition and measurement and the disclosure of financial instruments are the subjects of IFRS 9 or IAS 39 and IFRS 7 respectively.

For presentation, financial instruments are classified into financial assets, financial liabilities and equity instruments. Differentiation between a financial liability and equity depends on whether an entity has an obligation to deliver cash (or some other financial asset).

However, exceptions apply. When a transaction will be settled in the issuer’s own shares, classification depends on whether the number of shares to be issued is fixed or variable.

A compound financial instrument, such as a convertible bond, is split into equity and liability components. When the instrument is issued, the equity component is measured as the difference between the fair value of the compound instrument and the fair value of the liability component.

Financial assets and financial liabilities are offset only when the entity has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

 

Standard history

In April 2001 the International Accounting Standards Board (Board) adopted IAS 32 Financial Instruments: Disclosure and Presentation, which had been issued by the International Accounting Standards Committee in 2000. IAS 32 Financial Instruments: Disclosure and Presentation had originally been issued in June 1995 and had been subsequently amended in 1998 and 2000.

The Board issued a revised IAS 32 in December 2003 as part of its initial agenda of technical projects. This revised IAS 32 also incorporated the guidance contained in related Interpretations (SIC‑5 Classification of Financial Instruments‑Contingent Settlement Provisions, SIC‑16 Share Capital‑Reacquired Own Equity Instruments (Treasury Shares) and SIC‑17 Equity—Costs of an Equity Transaction). It also incorporated guidance previously proposed in draft SIC Interpretation D34 Financial Instruments—Instruments or Rights Redeemable by the Holder.

In December 2005 the Board amended IAS 32 by relocating all disclosures relating to financial instruments to IFRS 7 Financial Instruments: Disclosures. Consequently, the title of IAS 32 changed to Financial Instruments: Presentation.

In February 2008 IAS 32 was changed to require some puttable financial instruments and obligations arising on liquidation to be classified as equity. In October 2009 the Board amended IAS 32 to require some rights that are denominated in a foreign currency to be classified as equity. The application guidance in IAS 32 was amended in December 2011 to address some inconsistencies relating to the offsetting financial assets and financial liabilities criteria.

In May 2017 when IFRS 17 Insurance Contracts was issued, it amended the treasury share requirements to provide an exemption in specific circumstances.

Other Standards have made minor consequential amendments to IAS 32. They include Improvements to IFRSs (issued May 2010), IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issued May 2011), Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) (issued June 2011), Disclosures—Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) (issued December 2011), Annual Improvements to IFRSs 2009–2011 Cycle (issued May 2012), Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (issued October 2012), IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (issued November 2013), IFRS 15 Revenue from Contracts with Customers (issued May 2014), IFRS 9 Financial Instruments (issued July 2014), IFRS 16 Leases (issued January 2016), Annual Improvements to IFRS Standards 2015–2017 Cycle (issued December 2017), Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018) and Amendments to IFRS 17 (issued June 2020).

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