Regardless of the currency in which the exercise price is denominated, in a rights issue an entity will receive a fixed amount of cash for a fixed number of its equity instruments. These are classified as an equity instrument.
Based on the requirements of Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards, EFRAG has published its opinion on the adoption of the Amendment to IAS 32 Classification of Rights Issues (‘the Amendment’). The Amendment was issued as an Exposure Draft in August 2009 and EFRAG commented on that draft.
The Amendment clarifies that a rights issue offered pro rata to all of an entity’s existing shareholders on the exercise of which the entity will receive a fixed amount of cash for a fixed number of the entity’s own equity instruments is classified as an equity instrument regardless of the currency in which the exercise price is denominated.
The Amendment shall apply to annual periods beginning on or after 1 February 2010. Earlier application is permitted.
EFRAG has carried out an evaluation of the Amendment. As part of that process, EFRAG issued an evaluation of the Amendment against the EU endorsement criteria for public comment and, when finalising its advice and the content of this letter, it took the comments received in response into account. EFRAG’s evaluation is based on input from standard- setters, market participants and other interested parties, and its discussions of technical matters are open to the public.
EFRAG supports the Amendment and has concluded that it meets the requirements of Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards, in that:
· it is not contrary to the ‘true and fair principle’ set
· it meets the criteria of understandability, relevance, reliability and comparability required of the financial information needed for making economic decisions and assessing the stewardship of management.
© EFRAG - European Financial Reporting Advisory Group
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