A Practical Guide to the Classification of Financial Instruments Under IAS 32

When an entity issues a financial instrument, it must determine its classification either as a liability or as equity. That determination has an immediate and significant effect on the entity’s reported results and financial position.
 
Liability classification affects an entity’s gearing ratios and typically results in any payments being treated as interest and charged to earnings. Equity classification avoids these impacts but may be perceived negatively by investors if it is seen as diluting their existing equity interests.
 
IAS 32 ‘Financial Instruments: Presentation’ (IAS 32) addresses this classification process.
 
Understanding the classification process and its effects is therefore a critical issue for management and must be kept in mind when evaluating alternative financing options.
 
This Grant Thornton report addresses IAS 32’s key application issues and includes interpretational guidance in certain problematic areas.
 
What's Inside:
  • The importance of classification as liability or equity

 

  • What is a contractual obligation to pay cash or another financial asset?

 

  • Instruments settled in an entity’s own equity instruments

 

  • Puttable instruments and obligations arising on liquidation

 

  • Compound financial instruments

 

  • Future Developments 

 

 

Download Now

Read more on

Suggested Articles

Some of you might have already been aware of the news that Questex—with the aim to focus on event business—will shut down permanently all media brands in Asia…

Some advice for transitioning into an advisory role

Global risks are intensifying but the collective will to tackle them appears to be lacking. Check out this report for areas of concern