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The International Accounting Standards Board (IASB) tentatively decided to explore making clarifying amendments to IAS 32 Financial Instruments: Presentation to address common accounting challenges that arise in practice when applying IAS 32. The IASB aims to address those challenges by clarifying some underlying principles in IAS 32 and adding application guidance to facilitate consistent application of those principles. In addition, it intends to further develop some presentation and disclosure requirements. The IASB'S tentative decisions were made after considering feedback on the Discussion Paper Financial Instruments with Characteristics of Equity, which was published in June 2018.

The Discussion Paper set out the IASB'S preferred approach to classification of a financial instrument, as a financial liability or an equity instrument, from an issuer’s perspective. The IASB also explored enhanced presentation and disclosure requirements that would provide further information about financial instruments’ effects on an issuer's financial position and financial performance.

IASB® Update September 2022

The IASB met on 20 September 2022 to continue its discussions on the accounting for financial instruments containing obligations for an entity to redeem its own equity instruments, including written put options on non-controlling interests.

The IASB tentatively decided to propose amendments to IAS 32 Financial Instruments: Presentation to clarify:

  1. that paragraph 23 applies also to an obligation to redeem an entity’s own equity instruments that is required to be settled in a variable number of a different type of the entity’s own equity instruments.
  2. the accounting on initial recognition of the obligation to redeem an entity’s own equity instruments, if the entity does not already have access to the returns associated with an ownership interest. If the obligation involves non-controlling interests, the debit entry is recognised against a component of equity other than non-controlling interests. In the case of an entity’s other obligations to purchase its own shares, the debit entry is recognised against a component of equity other than issued share capital.
  3. that on expiry of a written put option on an entity’s own equity instruments:
    1. the financial liability is reclassified to the same component of equity as that from which it was reclassified on initial recognition of the put option; and
    2. the cumulative amount in retained earnings related to remeasuring the financial liability could be reclassified to another component of equity but is not reversed in profit or loss.

The IASB also tentatively decided to clarify that written put options and forward purchase contracts on an entity’s own equity instruments are required to be presented gross, instead of net, in order:

  1. to align the accounting for these instruments with the accounting for other obligations that are conditional on events or choices that are beyond the entity’s control; and
  2. to assist users of financial statements in assessing the entity’s exposure to liquidity risk.

Ten of 11 IASB members agreed with these decisions.

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Exposure Draft