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.
The IASB met on 20 June 2022 to continue its discussions on the reclassification of financial instruments issued by an entity as financial liabilities or equity instruments when the substance of the contractual terms changes without a modification to the contract.
The IASB tentatively decided to add general requirements on reclassification to IAS 32 Financial Instruments: Presentation to prohibit reclassification other than for changes in the substance of the contractual terms arising from changes in circumstances outside the contract. This approach does not affect reclassifications already required in IAS 32.
All 10 IASB members agreed with this decision.
The IASB also tentatively decided to clarify that when the substance of the contractual terms changes because of changes in circumstances outside the contract:
The IASB also acknowledged the importance of disclosures in helping users of financial statements better understand the change in classification and its effect on measurement, if any.