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On 29 November 2023 the International Accounting Standards Board (IASB) published for public comment the Exposure Draft Financial Instruments with Characteristics of Equity–Proposed amendments to IAS 32 Financial Instruments: Presentation, IFRS 7 Financial Instruments: Disclosures, and IAS 1 Presentation of Financial Statements.

IAS 32 currently sets out how a company that issues financial instruments should distinguish financial liabilities from equity instruments. That distinction is important because the classification of the instruments affects how a company’s financial position and performance are depicted.

IAS 32 works well for most financial instruments. However, continuing financial innovation means that some companies find it challenging to classify some complex financial instruments that combine some characteristics of both debt—financial liabilities—and ordinary shares—equity instruments.

Challenges in classifying these instruments can result in diverse accounting in practice, which in turn makes it difficult for investors to assess and compare companies’ financial position and performance. In addition, investors have been calling for better information, particularly about equity instruments.

The IASB has responded to feedback from investors and others and has considered previous work on the topic. The proposals in the Exposure Draft 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 IASB is now calling for feedback on the proposals in the Exposure Draft.

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The deadline for submitting comment letters is 29 March 2024.

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