IASB DP/2018/1

Discussion Paper: Financial Instruments with Characteristics of Equity

Tier 1 and Tier 2

The proposals in the Discussion Paper are relevant for Tier 1 and Tier 2 for-profit entities.

The International Accounting Standards Board (IASB) has published for comment the Discussion Paper DP/2018/1 Financial Instruments with Characteristics of Equity.

The Discussion Paper considers challenges associated with the classification of certain financial instruments as financial liabilities or equity instruments in accordance with IAS 32 Financial Instruments: Presentation.

These classification challenges occur when financial instruments combine some features of both debt—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 entities’ financial position and performance. In addition, investors have been calling for better information, particularly about equity instruments.

The Discussion Paper seeks comments on whether the challenges that the IASB has identified warrant standard-setting activity and on the IASB’s preferred approach to addressing the challenges.

Under the IASB’s preferred approach a financial instrument would be classified as a financial liability if the instrument contains:

  1. an unavoidable contractual obligation to transfer cash or other financial assets other than at liquidation (the ‘timing’ feature); and/or
  2. an unavoidable contractual obligation for an amount independent of the issuer’s available economic resources (the ‘amount’ feature).

Financial instruments would be classified as equity instruments if they do not contain either of these two features.

In addition to considering classification issues, the Discussion Paper explores proposals to enhance information provided through presentation and disclosure requirements for financial instruments. 


Accessing the Consultation Document

Commenting on the Proposals

The New Zealand Accounting Standards Board (NZASB) encourages you to read the Discussion Paper and comment on the proposals.

If you are aware of New Zealand-specific matters you want the NZASB to consider, send your comments—both formal or informal—by 7 November 2018 to the NZASB as follows.

Either by post to the:

Chief Executive
External Reporting Board
PO Box 11250
Manners Street Central
WELLINGTON 6142

OR by email to submissions@xrb.govt.nz.

We also encourage you to comment directly to the IASB, by 7 January 2019, with a copy to the NZASB. You can email your comments to the IASB to commentletters@ifrs.org or electronically using the ‘Comment on a proposal’ page on the IASB®website. To submit a comment letter via the IASB website, you also need to register as an eIFRS Basic subscriber.]


Please note:

  • We would appreciate receiving a copy of your comments in electronic form (preferably Microsoft Word format).  This helps us to more efficiently collate and analyse comments. Please also specify the exposure draft number and title in your electronic file. 

  • Tell us on whose behalf you are making the comments (for example on behalf of a group or an entity).

  • We intend publishing all comments on the XRB website, unless they may be defamatory. If you have any objection to this, we will not publish them. However, they will remain subject to the Official Information Act 1982 and, therefore, may be released in part or in full. The Privacy Act 1993 also applies.

  • If you have an objection to the release of any information contained in your comments, we would appreciate you identifying the parts of your comments to be withheld, and the grounds under the Official Information Act 1982 for doing so (for example, that it would be likely to unfairly prejudice the commercial position of the person providing the information).