8.3 Classification Guidance
8.3.1 Net Cash Settlement Provisions
Like ASC 815-40, IAS 32 does not permit equity classification for contracts that the entity could be forced to net cash settle. IAS 32 precludes equity classification for any contract that permits the entity to net cash settle or could require the entity to deliver cash or another financial asset or otherwise to settle the contract in such a manner that it would be a financial liability under IAS 32 (e.g., a contract that is net share settled).
Unlike ASC 815-40-25, IFRS Accounting Standards do not provide detailed guidance
on how an entity should evaluate whether it could be forced to net cash settle a
contract (e.g., a contract that requires or permits physical settlement in
shares when the issuer does not have sufficient authorized and unissued shares
to settle the contract in shares; see Chapter 5). Therefore, it is possible that
practitioners might reach different conclusions under ASC 815-40 and IAS 32
regarding whether a contract that specifies physical settlement qualifies as
equity when any of the equity classification conditions in ASC 815-40-25 are not
met.
8.3.2 Net Share Settlement Provisions
Unlike under ASC 815-40, contracts on own equity that require or permit the
issuer to net share settle do not qualify as equity under IAS 32. Only contracts
that require physical settlement could qualify for equity classification under
IFRS Accounting Standards.
8.3.3 Settlement Alternatives
If a contract gives either party a choice about how the contract is settled, IAS 32 requires the contract to be classified as an asset or a liability unless all the settlement alternatives would result in its being an equity instrument. Unlike ASC 815-40, IAS 32 precludes equity classification for contracts that permit the issuer to net cash settle or net share settle, even if the issuer could not be forced to settle in such a manner.