Financial Instruments with Characteristics of Equity

Financial instruments with both ‘debt-like’ and ‘equity-like’ features have become more common and more complex. There can be challenges in applying the classification requirements in IAS 32 to these instruments, which results in diversity in practice. Investors are also calling for better information about financial liabilities and equity instruments in the financial statements. To address this, the IASB is proposing amendments to clarify the classification requirements for financial liabilities and equity instruments and enhance presentation and disclosure requirements.


About this consultation

The Standard IAS 32 Financial Instruments: Presentation sets out requirements for classifying a financial instrument as a financial liability or as an equity instrument – an important distinction that can affect the entity’s financial position, financial performance and financial ratios.

The IASB’s Exposure Draft Financial Instruments with Characteristics of Equity proposes to clarify a number of the requirements in IAS 32, in particular:

  • The circumstances when a contract which is to be settled by the entity delivering a fixed number of its own shares/equity instruments meets the 'fixed for fixed’ condition for being classified as equity;
  • Accounting for the financial liability reflecting the obligation to purchase the entity’s own equity instruments (such as when shareholders have a right to require a share buy back);
  • Accounting for financial instruments with contingent settlement provisions;
  • Accounting for reclassification of an instrument from financial liabilities to equity or vice versa after initial recognition – and when such reclassification is permitted;
  • Whether and when shareholder discretion with respect to the settlement of a financial instrument is considered in determining the classification of a financial instrument.

The Exposure Draft also proposes new presentation and disclosure requirements:

  • Disclosure of certain information about financial liabilities and equity instruments, such as priority of claims against an entity, terms and conditions, potential dilution of ordinary shares, etc.
  • Presentation of the amount of profit, total comprehensive income and equity balances that are attributable to ordinary shareholders, separately from those attributable to other holders of equity instruments.

Accessing the Exposure Draft

Read the full Exposure Draft here.

We also encourage you to read the IASB's Illustrative Examples and Basis for Conclusions accompanying the Exposure Draft.

You may also want to read the IASB’s snapshot summary of the Exposure Draft proposals.

Submissions to the XRB closed on 1 March 2024. Submissions to the IASB closed on 29 March 2024.

Thank you to everyone who provided feedback on this consultation.  The New Zealand Accounting Standards Board considered the informal feedback received at as part of developing the Board's comment letter to the IASB. 

The Board's comment letter to the IASB can be viewed below.