Global Standards for the world economy

Tuesday 12 November 2019

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The Financial Instruments with Characteristics of Equity research project was discussed at the February 2017 IASB meeting.

 22 February 2017


The Board met on 22 February 2017 to discuss two topics in the Financial Instruments with Characteristics of Equity research project.

The Board was also given a summary of discussions to date (Agenda Paper 5A, which was provided for information only). No decisions were made.

The Board discussed:

  1. contractual terms and their interaction with legal and regulatory requirements; and
  2. accounting within equity.

Contractual terms (Agenda Paper 5B)

The Board discussed the scope of contractual rights and obligations an entity should consider when applying the Gamma approach to a financial instrument. The Board tentatively decided:

  1. to require an entity to apply the Gamma approach to the contractual terms of a financial instrument consistently with IAS 32 Financial Instruments: Presentation and IFRS 9 Financial Instruments. Ten of 12 Board members agreed and two disagreed with this decision.
  2. to consider whether it should take any action to address the accounting for mandatory tender offers, including potential disclosure requirements. Eleven of 12 Board members agreed and one disagreed with this decision.
  3. not to reconsider IFRIC 2 Members’ Shares in Co-operative Entities and Similar Instruments, given that it is not aware of any challenges to its application. Eleven of 12 Board members agreed and one disagreed with this decision.

Accounting within equity (Agenda Paper 5C)

The Board discussed application guidance and illustrative examples that will help clarify how its decisions on the Gamma approach would apply to accounting within equity. The discussion concerned transactions that have been challenging in practice when applying the existing IAS 32 requirements, including put options written on an entity’s own equity.

No decisions were made.

Next steps

At a future meeting, the Board will discuss:

  1. application of the Gamma approach to the classification of derivatives on non-controlling interests with an exercise price denominated in a foreign currency; and
  2. a summary of interactions with other IFRS Standards, IFRIC Interpretations and the Conceptual Framework in Financial Reporting.