FICE project: proposed amendment to IFRS 7 on financial instruments issued within the scope of IAS 32

In December 2022, the International Accounting Standards Board (IASB) continued to discuss the classification of financial instruments as debts or equity (Financial Instruments with Characteristics of Equity or FICE).

Keywords: Mazars, Thailand, IASB, Financial, FICE, IAS32, IFRS 7, Financial instruments

10 February 2023

The purpose of this project, which led to the publication of a discussion paper in June 2018, is to clarify the principles of IAS 32, to address the issues of its practical application and to improve the disclosures.

At its December meeting:

  • for equity instruments, the IASB asked the staff, after reviewing interactions with the Primary Financial Statement (PFS) project, to continue to explore ways of supplementing the disclosures on these instruments to address stakeholders' concerns that the current requirements are too limited in scope;
  • for debt instruments, the IASB discussed stakeholders' concerns about the treatment of certain financial liabilities, measured at fair value through profit or loss under IFRS 9, that represent a contractual obligation to pay the investor an amount that depends on the entity's performance or changes in its net assets. The issues raised included the requirement to account for changes in the fair value of these liabilities in profit or loss, which has a counter-intuitive effect leading, for example, to the recognition of profits when the entity's performance deteriorates. The IASB has tentatively decided not to change the presentation requirements of IAS 32, but to require additional and separate disclosure of the total amount of gains or losses resulting from the remeasurement of this category of financial liabilities at fair value through profit or loss;
  • the IASB believes that these disclosures, together with those tentatively agreed to by the IASB in April 2021, will help to meet the information needs of users of financial statements.

As a reminder, the April 2021 decisions on disclosures regarding the main characteristics of equity and debt instruments, together with their potential dilutive effect, were as follows:

  • for financial instruments with both debt and equity features (except for standalone derivatives), an entity issuing such instruments should present:
    • the 'debt-like' features included in instruments classified as equity;
    • the ‘equity-like' features included in instruments classified as debt;
    • the ‘debt-like’ and ‘equity-like’ features determining the classification of these financial instruments as financial liabilities, equity or compound financial instruments;
  • the following disclosures would be required at the reporting date on the potential dilutive effect of these instruments from the issuer's perspective:
    • the maximum number of additional ordinary shares to be issued for each class of potential ordinary shares;
    • the number of outstanding share options (as required by IFRS 2) and the number of unvested shares, if known;
    • the possibility of further dilution when the maximum number of ordinary shares to be issued is not yet known;
    • the minimum number of ordinary shares to be repurchased;
    • an analysis of changes in these aggregates over the period;
    • the characteristics of the instrument relevant to understand the likelihood of maximum dilution (with cross-reference to the disclosures relating to share-based payment programmes, as required by IFRS 2);
    • a description of any share buy-back programmes or programmes that may reduce the number of shares outstanding.

All of these new disclosure requirements (meaning those resulting from both the April 2021 and the December 2022 decisions) will be captured in a forthcoming Exposure Draft, expected in the second half of 2023, proposing amendments to IFRS 7 and IAS 32, based on the successive decisions taken by the IASB in response to comments received from stakeholders on the FICE discussion paper published in 2018.