The International Accounting Standards Board or IASB has proposed amendments to IAS 32, IFRS 7 Financial Instruments: Disclosures, and IAS 1 Presentation of Financial Statements.
The instruments:
AS 32 specifies presentation for financial instruments. The recognition and measurement and the disclosure of financial instruments are the subjects of IFRS 9 or IAS 39 and IFRS 7 respectively.
IFRS 7 Financial Instruments requires entities to disclose the significance and nature of risks associated with these financial instruments, both qualitatively and quantitatively.
IAS 1 Presentation of Financial Statements outlines the structure, content, and concepts of financial statements, including financial position, profit or loss, income, equity changes, and cash flows, requiring a complete set.
The new proposal:
The presentation emphasizes the significance of a company distinguishing between debt and equity instruments to accurately represent its financial position and performance. The main prospects include:
• to clarify the underlying classification principles of IAS 32 to help companies distinguish between debt and equity
• to require companies to disclose information to explain further the complexities of instruments that have both debt and equity features;
The need for the amendment:
IASB said IAS 32 is effective for most financial instruments, but evolving instruments present new reporting challenges. Diverse accounting practices make it difficult for investors to assess and compare companies’ financial performance. Investors are calling for better information, particularly about equity instruments.
The proposed amendment is aimed at improving financial reporting for companies with both debt and equity features. IASB plans to introduce new presentation requirements for ordinary shareholders, including profit and total comprehensive income, which will be distinct from those for other equity instrument holders.
Quote:
Andreas Barckow, Chair, IASB, said, “Our goal is to bring more transparency to investors, ensuring that they have high-quality information about complex financial instruments when making investment decisions. We believe these proposed amendments represent a significant step in helping companies to depict their financial position and better communicate with investors faithfully.”
The deadline for comments on the proposed amendments to IAS 32, IFRS 7, and IAS 1 for the Exposure Draft Financial Instruments with Characteristics of Equity is March 29, 2024.
