Exposure Draft and Comment Letters

The IASB and the US national standard-setter, the Financial Accounting Standards Board, are working together on a comprehensive project on distinguishing debt from equity. However, that project will take several years to complete.

There are many legitimate reasons for put features, and the IASB concluded that its constituents should not be forced to await the outcome of the long-term project. It decided to propose amendments to IAS 32 so that some instruments would be classified as equity rather than as liabilities.

Under the proposed amendments, the following types of financial instruments would be classified as equity, provided that specified criteria are met:

• ordinary shares that are puttable to (ie redeemable from) the issuer at fair value;
• ordinary shares of limited life entities; and
• partners’ interests in a partnership that must liquidate upon exit of a partner (eg on retirement or death).

The amendments also propose disclosures about the instruments affected by the proposals.