IASB issues amendments to improve the financial reporting of particular financial instruments

14 February 2008

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The International Accounting Standards Board (IASB) today issued amendments to improve the accounting for particular types of financial instruments that have characteristics similar to ordinary shares but are at present classified as financial liabilities.

The amendments, which respond to requests from entities around the world, are set out in Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation.

IAS 32 requires a financial instrument to be classified as a liability if the holder of that instrument can require the issuer to redeem it for cash. That straightforward principle works well in most situations. However, many financial instruments that would usually be considered equity, including some ordinary shares and partnership interests, allow the holder to ‘put’ the instrument (to require the issuer to redeem it for cash). Currently these financial instruments are considered liabilities, rather than equity.

The amendments to IAS 32 address this issue and require entities to classify the following types of financial instruments as equity, provided they have particular features and meet specific conditions:

• puttable financial instruments (for example, some shares issued by co-operative entities)

• instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation (for example, some partnership interests and some shares issued by limited life entities).

Additional disclosures are required about the instruments affected by the amendments.

The amendments issued today result from the IASB’s consideration of responses to proposals it published in an exposure draft Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation in June 2006.

The amendments will apply for annual periods beginning on or after 1 January 2009, with earlier application permitted.

For further information on the amendment to IAS 32, please visit the project Website on www.iasb.org.

Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation is available for eIFRS subscribers from today. Those wishing to subscribe to eIFRSs should visit the online shop at www.iasb.org or contact:

IASC Foundation Publications Department,
30 Cannon Street,
London EC4M 6XH,
United Kingdom. 

Telephone: +44 (0)20 7332 2730
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Email: publications@iasb.org

Printed copies (ISBN 978-1-905590-60-5) will be available shortly, at £10.00 plus shipping, from the IASC Foundation Publications Department.

• Mark Byatt, Director of Corporate Communications, IASB
  Telephone: +44 (0)20 7246 6472
  Email: mbyatt@iasb.org
• Sonja Horn, Communications Adviser, IASB
  Telephone: +44 (0)20 7246 6463
  Email: shorn@iasb.org

Technical enquiries

• Wayne Upton, Director of Research, IASB 
  Telephone: +44 (0)20 7246 6449
  Email: wupton@iasb.org
• Gavin Francis, Senior Project Manager, IASB
  Telephone: +44 (0)20 7246 6901
  Email: gfrancis@iasb.org
• Elizabeth Figgie, Project Manager, IASB 
  Telephone: +44 (0)20 7246 6925
  Email: efiggie@iasb.org