IAS 32 : IASB Amendment : Presentation

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Classification for Rights Issues
The International Accounting Standards Board issued an amendment to IAS 32 Financial Instruments : Presentation.

The amendment addresses the accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. Previously such rights issues were accounted for as derivative liabilities. However, the amendment issued today requires that, provided certain conditions are met, such rights issues are classified as equity regardless of the currency in which the exercise price is denominated.

The global financial crisis has led to an increase in the number of such rights issues as entities seek to raise additional capital. The IASB has moved swiftly to address this issue.

Entities are required to apply the amendment for annual periods beginning on or after 1 February 2010, but earlier application is permitted. Classification of Rights Issues (Amendment to IAS 32) is available for eIFRS subscribers from today. Printed copies (ISBN 978-1-907026-40-9) will be available shortly, at £10 plus shipping, from IASC Foundation

Exposure Draft

The proposals seek to clarify the accounting treatment when rights issues are denominated in a currency other than the functional currency of the issuer. Current practice appears to require such issues to be accounted for as derivative liabilities. The proposals state that if such rights are issued pro rata to an entity’s existing shareholders for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated.

Download the IAS 32 Amendment