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The International Accounting Standards Board (Board) 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 Board 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 Board’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 Board's preferred approach to classification of a financial instrument, as a financial liability or an equity instrument, from an issuer’s perspective. The Board 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 May 2021

The Board met on 26 May 2021 to continue discussing potential refinements to its proposals for the disclosure of information about priority on liquidation. The Board discussed proposals to require two new types of disclosures. (The requirements would, if finalised, be incorporated into IFRS 7 Financial Instruments: Disclosures.) 

Disclosure of the nature and priority of claims against an entity 

The Board tentatively decided to require: 

  1. an entity to disclose and categorise in the notes its claims that are financial instruments in a way that reflects differences in their nature and priority, and at a minimum, to distinguish between: 
    1. secured and unsecured financial instruments; 
    2. contractually subordinated and unsubordinated financial instruments; and 
    3. those issued or owed by the parent and those issued or owed by subsidiaries; and 
  2. the disclosures to be made for all financial liabilities and equity instruments that are within the scope of IAS 32 Financial Instruments: Presentation. 

All 12 Board members present agreed with this decision. One member was absent. 

Disclosure of terms and conditions about priority on liquidation for particular financial instruments 

The Board tentatively decided to require: 

  1. an entity to disclose in the notes:  
    1. terms and conditions that indicate priority on liquidation; 
    2. terms and conditions that could lead to changes in priority on liquidation; 
    3. that a particular type of financial instrument has more than one level of contractual subordination, if applicable (for example, if some subordinated liabilities are contractually subordinated to other subordinated liabilities); 
    4. narrative information when an entity is aware of significant uncertainty about the application of relevant laws or regulations that could affect how priority will be determined on liquidation; and 
    5. details of intra-group arrangements such as guarantees that may affect their priority on liquidation (for example, which entities are providing and receiving guarantees); and 
  2. the disclosures to be made for all financial instruments with characteristics of both debt and equity, including compound instruments, but excluding stand-alone derivative instruments. 

An entity would be required to make the disclosures described in (a) as part of the disclosures about terms and conditions on which the Board tentatively agreed at its April 2021 meeting. 

All 12 Board members present agreed with this decision. One member was absent. 

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Exposure Draft

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