FICE project: discussions continue

At its meeting on 20 June 2022, the IASB continued its discussions on the FICE (Financial Instruments with Characteristics of Equity) project, following a request from the IFRS Interpretations Committee. The Board discussed the reclassification of financial instruments issued by an entity from financial liabilities to equity or vice versa, when the substance of the contractual terms changes without a modification to the contract.

Keywords: Mazars, Thailand, IFRS, IASB, FICE, IAS 32

17 August 2022

The IASB tentatively decided to add new requirements on reclassifications to IAS 32, such that reclassification would be prohibited other than for changes in the substance of the contractual terms arising from changes in circumstances outside the contract. This does not affect reclassifications already required under IAS 32.

The IASB also tentatively decided to add the following clarifications on changes in the substance of the contractual terms arising from changes in circumstances outside the contract:

an equity instrument reclassified as a financial liability would be measured at fair value at the date of reclassification. Any difference between the carrying amount recognised in equity and the fair value of the financial liability would be recognised in equity;
a financial liability reclassified as an equity instrument would be measured at the carrying amount of the financial liability at the date of reclassification. No gain or loss would be recognised;
the reclassification would be accounted for in the reporting period in which the change in circumstances occurred.

Finally, the IASB emphasised the importance of disclosures in the notes to help readers to understand the change in classification and any impact on measurement of the instrument.