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AcSB Response – Financial Instruments with Characteristics of Equity

February 19, 2019 International Activity

The International Accounting Standards Board’s (IASB) Discussion Paper, “Financial Instruments with Characteristics of Equity” was issued in June 2018. The paper seeks to address the current application challenges with IAS 32 Financial Instruments: Presentation.

The Discussion Paper:

  • sets out the IASB's preferred approach to classification of a financial instrument, from the perspective of the issuer, as a financial liability or an equity instrument; and
  • explores enhanced presentation and disclosure requirements that would provide further information about the effects that financial instruments have on the issuer's financial position and financial performance.

In responding to the challenges, the IASB is seeking to limit unnecessary changes to classification outcomes of IAS 32 that are already well understood, and that stakeholders say provide useful information.

The AcSB’s due process includes ensuring that Canadian entities’ financial reporting needs are considered by the IASB. We also issue our own response letter to the IASB’s Discussion Paper.

On January 15, 2019, we responded to the IASB’s Discussion Paper. We commend the IASB for striving to address the current application challenges and agree that standard setting activity is required to address issues that currently arise with the application of IAS 32.

Overall, our response letter clearly articulates that we are of the view that the IASB’s preferred approach is not robust enough to address all the challenges identified in practice. The new terminology introduces very complex concepts that are likely to create additional application challenges.

Although we appreciated the IASB’s effort to expand the disclosures for equity instruments, we did not agree with the proposal to expand the attribution of income and expenses to equity instruments other than ordinary shares.

We welcomed some of the IASB’s proposals – especially on the retention of the puttable exception and the disclosure of terms and conditions of financial instruments, more specifically as it relates to equity instruments.

Read the Board’s letter submitted to the IASB.

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Jayshal Daya, CPA, CA  Principal, Accounting Standards Board 
Phone no.: +1 (416) 204-3501 
Email: [email protected]