Skip to content
Show Sections

Current stage

In November 2023, the International Accounting Standards Board (IASB) published the Exposure Draft Financial Instruments with Characteristics of Equity. The IASB proposed amendments to IAS 32 Financial Instruments: Presentation, IFRS 7 Financial Instruments: Disclosures, and IAS 1 Presentation of Financial Statements* to address the existing challenges in companies’ financial reporting of financial instruments with characteristics of equity.

The proposals include:

  • clarification of the underlying classification principles of IAS 32 to help companies distinguish between financial liabilities and equity;
  • disclosures to further explain complexities around instruments that have both financial liability and equity characteristics; and
  • presentation requirements for amounts—including profit and total comprehensive income—attributable to ordinary shareholders separately from amounts attributable to other holders of equity instruments.

The comment period closed on 29 March 2024. The IASB is considering stakeholder feedback and redeliberating the proposals.

* In April 2024 the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements which replaces IAS 1. IFRS 18 has an effective date of 1 January 2027.

IASB® Update September 2025

The IASB met on 25 September 2025 to continue redeliberating the proposed requirements in the Exposure Draft Financial Instruments with Characteristics of Equity. The IASB discussed proposed amendments to IAS 32 Financial Instruments: Presentation related to two classification topics:

  • the reclassification of financial liabilities and equity instruments (Agenda Paper 5A); and
  • the effect of shareholder decision-making rights on the classification (Agenda Papers 5B–5C).

Proposed amendments—Reclassification of financial liabilities and equity instruments (Agenda Paper 5A)

The IASB tentatively decided to proceed with the proposed requirements on the reclassification of financial liabilities and equity instruments set out in the Exposure Draft, subject to some targeted refinements:

  1. to clarify that the reclassification requirements would apply to changes in the substance of a contractual arrangement that do not:
    1. create or extinguish contractual rights or obligations; or
    2. modify the contractual terms;
  2. to further clarify that ‘circumstances external to the contractual arrangement’ are events that:
    1. arise after a financial instrument is classified; and
    2. are significant to the entity’s operations, demonstrable to external parties and generally expected to occur infrequently; and
  3. to require an entity to reclassify a financial instrument containing an obligation to deliver its own equity instruments from financial liability to equity when the substance of the contractual arrangement changes because a contractual term stops being effective.

Nine of 12 IASB members agreed with this decision.

Detailed feedback and proposed amendments—Shareholder discretion (Agenda Papers 5B–5C)

The IASB discussed a summary of the feedback on the proposed requirements on shareholder discretion.

The IASB tentatively decided to proceed with the proposed factors-based approach set out in the Exposure Draft for assessing at initial recognition whether shareholder decisions are treated as entity decisions, subject to minor drafting improvements.

The IASB also tentatively decided to clarify the principles underlying the proposed factors-based approach, namely, that an entity applies judgement when considering:

  1. the contractual terms of the financial instrument;
  2. the facts and circumstances applicable to the reporting entity;
  3. the capacity in which shareholders act when making decisions by applying the proposed factors and any other relevant factors;
  4. the weightings to be applied to each factor, taking into account that no factor is conclusive on its own; and
  5. the interaction of multiple shareholder decision-making rights and their effects on the classification of the financial instrument.

All 12 IASB members agreed with this decision.

Next milestone

Final Amendments