The IASB publishes its FICE discussion paper
On 25 June, the IASB a published a discussion paper presenting its current thinking on the Financial Instruments with the Characteristics of Equity project (FICE). This project focuses on the distinction between debt and equity for financial instruments in the issuer’s accounts. The discussion paper is open for comments until 7 January 2019, and this feedback will help the Board to decide whether it should publish an exposure draft to amend or replace IAS 32 and/or non-mandatory application guidance.
The IASB would like to address the growing number of financial instruments that combine the characteristics of debt and equity, which are sometimes difficult to account for under IAS 32. The hope is that this discussion paper will enable it to tackle these particular problems without amending the classification of the majority of other, less complex, instruments. Some key principles therefore remain unchanged, such as the exclusion of economic compulsion from the analysis of the classification.
The Board’s preferred approach to classification depends on two new criteria:
- a timing feature: there is an unavoidable obligation to transfer economic resources at a specified time other than at liquidation;
- an amount feature: there is an obligation to transfer an amount independent of the entity’s available economic resources.
A financial instrument with either of these two characteristics would be classified as a financial liability. Only instruments with neither characteristic are classified as equity.
A financial instrument only presenting the timing feature would be classified in debt but gains would be accounted for in other comprehensive income (OCI) rather than in profit or loss.
The discussion paper also presents the application of this approach to derivatives on own equity (including puts on non-controlling interests) and to compound instruments.
The IASB also offers some new avenues of thought with respect to the impact of these instruments on the statement of financial position and the statement of comprehensive income, along with new disclosures to be provided in the notes.
We will present this discussion paper in more detail in a future edition of Beyond the GAAP.
The IFRS Foundation consults on trustee service length
On 25 June 2018 the IFRS Foundation launched a consultation with a view to enabling the Trustee Chair (recruited either from among the Trustees or externally) and its two Vice-Chairs (recruited from among the Trustees) to serve three three-year terms of office. This would enable the Foundation to benefit from continuity and the valuable experience gained whilst in office.
Another amendment aims to enable former Trustees who have completed their maximum term of office to be reappointed once only after a lapse of six years, for a term of three years, renewable only once.
The IFRS Foundation consultation is open until 19 September 2018 and is available here.