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The ED aims to address diversity in accounting practices for the classification of financial instruments with both debt and equity features. It proposes (i) clarifying the underlying classification principles in IAS 32; and (ii) expanding disclosure and presentation requirements for certain financial liabilities and equity instruments.
We are generally supportive of the proposals and have highlighted areas where further clarification(s) could be made to enhance the understandability / scope / applicability of the requirements. However, we have reservations on two areas:
- the effects of relevant laws and regulations - we are concerned with (i) the apparent contradiction within IASB's proposals regarding the need to consider rights and obligations created by relevant laws and regulations and (ii) the proposals going beyond the remit of IAS 32 and IFRS 9 which focuses on the assessment of contractual terms. The latter can lead to practical challenges such as the need for complex and in-depth legal analysis as well as potentially significant disruptions to current practice(s); and
- reclassification of financial liabilities and equity instruments - we are concerned that the proposed prohibition to reclassify financial liability to equity when the liability feature has expired would not faithfully represent the entity's condition at reporting date, and this can lead to reduced understandability and comparability of financial statements.
Read more in our comment letter.