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Financial instruments with characteristics of equity


This project was originally commenced as a joint IASB-FASB project addressing the distinction between liabilities and equity.  The main objective is to identify the characteristics that should be present in an instrument for it to be classified as either an equity or liability instrument.

On reactivating this project as an IASB-only project in December 2012, the IASB decided this project should be undertaken in conjunction with the comprehensive conceptual framework project.

Accordingly, this project is expected to:

  • identify financial instruments that are difficult to classify under the current requirements of IAS 32 Financial Instruments: Presentation, or those for which the classification is questioned by preparers and users
  • use these instruments as 'test cases' for the elements chapter of the Conceptual Framework.


Current status of the project

During their joint meeting in November 2010, the IASB and FASB decided to defer further work on this project. In December 2012, as part of its response to the Agenda Consultation 2011, the IASB formally reactivated this project as an IASB-only research project.

Project milestones

28 February 2008 Discussion Paper Financial Instruments with Characteristics of Equity published Comment deadline 5 September 2008
24 July 2008 Added to the active agenda
November 2010 IASB and FASB deferred further work on their joint project
December 2012 Reactivated as an IASB-only research project Outcomes to be incorporated into the elements chapter of the Conceptual Framework

Related Discussions

  • Financial instruments with characteristics of equity

  • Oct 22, 2010

  • The IASB and FASB considered the ways forward in the financial instruments with characteristics of equity project and initial suggestions of some Board members to perform a targeted improvements approach in the areas of fixed-for-fixed guidance, convertible debt and redeemable and puttable instruments. Given concerns raised, the Boards decided to remove the project from its active agenda for the time being.

  • Financial instruments with characteristics of equity

  • Sep 14, 2010

  • The staff provided the IASB details of possible ways to proceed in the project ranging from continuing with the pre-ballot draft to abandoning the project. The discussion focused on convergence with the FASB and the potential for a common project in this area.

  • IAS 27 — Put options written over non-controlling interests

  • Sep 01, 2010

  • The Committee received a request for guidance on how an entity should account for changes in the carrying amount of a financial liability for a put option, written over shares held by a non-controlling interest shareholder (‘NCI put’), in the consolidated financial statements of a parent entity.

  • Financial instruments with characteristics of equity

  • Jul 21, 2010

  • The project team presented the Board the results of the external review of the staff draft of the ED 'Financial Instruments with Characteristics of Equity'. The Board members noted that the most obvious criticism was the lack of principle, and as such the basic approach to this project needs to be reconsidered.

  • Financial instruments with characteristics of equity

  • Mar 11, 2010

  • The IASB and FASB discussed derecognition requirements, reassessment of classification, economic compulsion, fair value option, scope exclusions and additions, transition, disclosure, and publicly-traded entities.

  • IAS 32 — Shareholder discretion

  • Mar 04, 2010

  • The IFRIC received a request for guidance on whether a financial instrument, in the form of a preference share that includes a contractual obligation to deliver cash, is a financial liability or equity, if the payment is at the ultimate discretion of the issuer’s shareholders.

  • IAS 32 — Application of the ‘fixed for fixed’ condition

  • Jan 07, 2010

  • The IFRIC received requests for guidance on the application of paragraph 22 of IAS 32 which states that ‘except as stated in paragraph 22A, a contract that will be settled by the entity (receiving or) delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument’ (often referred to as the ‘fixed-for-fixed’ condition).

  • Financial Instruments with the Characteristics of Equity

  • Dec 16, 2009

  • The Boards discussed the scope exemption for share-based payments, presentation of physically-settled forward purchase contracts and physically settled written put options, and the classification of share-settled instruments as equity.

  • IAS 32 — 'Fixed for fixed' condition

  • Nov 05, 2009

  • The IFRIC resumed its debate on more general 'fixed for fixed' condition in IAS 32. The staff presented a comprehensive overview of questions received on classification of financial instruments divided in two broad categories: foreign currency situations and pre-determined condition situation.

  • IFRS 4 and IAS 32 — Scope issue for investments in REITs

  • Nov 05, 2009

  • IFRIC considered the liability/equity classification of financial instruments with specific features issued by Real Estate Investment Trusts (REITs), specifically whether a contractual obligation to distribute 90% of distributable profit is a guaranteed benefit (as defined in IFRS 4) and, therefore, these investments should be accounted in accordance with IFRS 4.

  • Financial Instruments with Characteristics of Equity

  • Jun 18, 2009

  • The Boards discussed the measurement of equity instruments and separated hybrid instruments, transaction costs, initial measurement of freestanding equity instruments, separation of equity hybrids, subsequent measurement, and measurement of liability and asset instruments.

  • Liabilities and Equity

  • Sep 17, 2008

  • The Boards met with representatives of the European Association of Co-operative Banks, which gave a presentation on principles and mechanisms of co-operatives and the impact of the proposals set out in the Discussion Paper Financial Instruments with the Characteristics of Equity.