EFRAG publishes Final Comment Letter on the IASB’s Exposure Draft Financial Instruments with Characteristics of Equity

​EFRAG has published its Final Comment Letter on the IASB's ED/2023/5 Financial Instruments with Characteristics of Equity (Proposed amendments to IAS 32, IFRS 7 and IAS 1) ('the ED').

​​EFRAG has published its Final Comment Letter on the IASB's ED/2023/5 Financial Instruments with Characteristics of Equity (Proposed amendments to IAS 32, IFRS 7 and IAS 1) ('the ED'). EFRAG appreciates the IASB’s efforts and approach to addressing issues that arise in practice related to IAS 32 Financial Instruments: Presentation (‘IAS 32’) by clarifying some of the underlying principles in IAS 32 and adding application guidance to facilitate the consistent application of the principles.

 EFRAG agrees with and welcomes many of the IASB’s clarifications of the IAS 32 issues that arise in practice, particularly on the fixed-for-fixed condition, shareholder’s discretion, presentation and transition requirements. 

Nonetheless, EFRAG suggests that the IASB pursue several improvements on the following requirements. In this regard, EFRAG: 

  • suggests that the IASB discuss further measurement issues of financial liabilities with contingent settlement provisions under the scope of IAS 32; 
  • suggests that the IASB allow reclassification if the terms and conditions become, or stop being, effective with the passage of time; and 
  • while agreeing with the disclosure proposals, suggests that the IASB ensure that proposed disclosure requirements are clear, can be implemented by entities and ensuring an adequate cost-benefit balance, particularly on disclosures of terms and conditions related to priority on liquidation. 

Furthermore, EFRAG disagrees with the topics on the effects of relevant laws and regulations and written put options on non-controlling interest and considers that there is a need for a more comprehensive discussion and outreach activities with constituents. EFRAG suggests that the IASB: 

  • reconsider its proposals on the effects of relevant laws and regulations; 
  • reconsider the initial accounting within equity for written put options on non-controlling interest; 
  • discuss more comprehensively measurement issues of written put options on non-controlling interest; and 
  • further consider subsequent measurement of the redemption amount. 

Therefore, EFRAG suggests that the IASB separate the topics on the effects of relevant laws and regulations and written put options on non-controlling interest from the remaining topics in the ED and deal with them in a separate project. This is because EFRAG considers that the implementation of the other IASB proposals should not be delayed due to these two topics. Nevertheless, EFRAG highlights the urgency to find a solution for these two topics swiftly.

Moreover, before any of the IASB’s proposals are finalised, EFRAG suggests testing the proposals and conducting constituent outreach. 

EFRAG's Final Comment Letter can be found here.

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