8.2 Indexation Guidance

Under paragraph 22 of IAS 32, “a contract that will be settled by the entity (receiving or) delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument” unless the equity instruments to be received or delivered are equity-classified puttable instruments. Accordingly, a contract must provide for the exchange of a fixed number of equity instruments for a fixed monetary amount of cash or other assets to qualify as equity under IFRS Accounting Standards. This guidance is comparable to the requirement under ASC 815-40-15 that to qualify as equity, a contract on an entity’s own equity must be a fixed-for-fixed forward or option on equity shares, or the only variables that could adjust the settlement amount must be inputs to a fixed-for-fixed forward or option (see Section 4.3). However, unlike ASC 815-40, IAS 32 does not provide detailed guidance on determining whether a contract should be considered fixed for fixed when it contains adjustments to the settlement amount (e.g., antidilution provisions). In practice, certain adjustments are viewed as acceptable under IAS 32 (e.g., when the purpose is to give the counterparty the same protection from a dilutive event as holders of the underlying shares have).

To meet the fixed-for-fixed requirement under IAS 32, the monetary amount must be specified in the issuing entity’s functional currency; however, there is one exception. Paragraph 11 of IAS 32 states that “rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments.”