Financial Instruments with Characteristics of Equity

The IASB met on 24 May 2023 to discuss:

• proposed consequential amendments to the prospective IFRS Accounting Standard Subsidiaries without Public Accountability (that Accounting Standard is to be issued as part of the IASB’s project which aims to reduce disclosure requirements for eligible subsidiaries); and
• the due process steps—including permission to begin the balloting process—for the Exposure Draft Financial Instruments with Characteristics of Equity (FICE exposure draft).

Subsidiaries without public accountability—disclosures (Agenda Paper 5A)

The IASB tentatively decided to propose consequential amendments to be made to the IFRS Accounting Standard Subsidiaries without Public Accountability after it has been issued. The amendments would add to the Standard the following disclosure requirements that are to be proposed in the FICE exposure draft:

1. for all financial liabilities and equity instruments within the scope of IAS 32 Financial Instruments: Presentation, an entity would disclose and categorise claims against its assets in a way that reflects differences in their nature and priority, and at a minimum, distinguishes between:
   1. secured and unsecured financial instruments; and
   2. contractually subordinated and unsubordinated financial instruments;
2. for financial instruments with characteristics of both financial liabilities and equity instruments (except for stand-alone derivatives), an entity would disclose information about:
   1. debt-like features in financial instruments that are classified as equity instruments;
   2. equity-like features in financial instruments that are classified as financial liabilities;
   3. debt-like and equity-like features that determine the classification of such financial instruments as financial liabilities, equity instruments or compound financial instruments;
   4. terms and conditions that indicate priority on liquidation;
   5. terms and conditions that could lead to changes in priority on liquidation;
   6. more than one level of contractual subordination, if applicable (for example, if some subordinated liabilities are contractually subordinated to other subordinated liabilities);
   7. any significant uncertainty regarding the application of relevant laws or regulations that could affect how priority will be determined on liquidation; and
   8. intra-group arrangements such as guarantees that may affect their priority on liquidation (for example, which entities are providing and receiving guarantees);
3. an entity would disclose information about terms and conditions that become, or stop being, effective with the passage of time before the end of the contractual term of the financial instrument;
4. for instruments containing obligations to redeem own equity instruments, an entity would disclose:
   1. the amount removed from equity and included in financial liabilities when the obligation was initially recognised and the component of equity from which it was removed;
   2. the amount of remeasurement gain or loss recognised in profit or loss during the reporting period;
   3. the amount of gain or loss, if any, that was recognised on settlement if the obligation is settled during the reporting period; and
   4. the amount removed from financial liabilities and included in equity if the written put option has expired unexercised;
5. an entity would separately disclose the total gains or losses in each reporting period that arise from remeasuring financial liabilities containing contractual obligations to pay amounts based on the entity’s performance or changes in the entity’s net assets (that are measured at fair value through profit or loss); and
6. an entity would disclose the significant judgements it made in determining the classification of a financial instrument, or its component parts, as a financial liability or as equity.

Nine of 14 IASB members agreed with the decisions in (b)(iv)–(viii). All 14 IASB members agreed with the other decisions.

Due process and permission to begin the balloting process (Agenda Paper 5B)

The IASB decided to set a comment period of 120 days for the FICE exposure draft.

All 14 IASB members agreed with this decision.

One IASB member indicated an intention to dissent from the proposals in the FICE exposure draft.

All 14 IASB members confirmed they were satisfied the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting the FICE exposure draft.