10.1 Background
10.1.1 IFRS Guidance
Under IFRS Accounting Standards, an issuer applies IAS 32 to determine whether
outstanding shares and other financial instruments should be
classified as liabilities (or, in some circumstances, assets) or
equity or be separated into liability and equity components. IAS 32
has a broader scope than does ASC 480-10. For example, IAS 32
addresses the accounting for convertible debt instruments, contracts
on the entity’s own equity that do not embody obligations of the
issuer (e.g., purchased put or call options on the entity’s own
equity), and contracts that embody obligations to transfer a fixed
number of the issuer’s equity shares but do not require the issuer to
transfer assets or a variable number of equity shares (e.g., written
call options, warrants, and forward sale contracts on the entity’s own
equity). The discussion of key differences below applies only to
contracts within the scope of ASC 480-10.
See Chapter 8 of
Deloitte’s Roadmap Contracts on an Entity’s Own Equity for
a discussion of key differences between U.S. GAAP and IFRS Accounting
Standards related to contracts on an entity’s own equity that are
within the scope of ASC 815-40.
10.1.2 Key Differences
The table below summarizes key differences between U.S. GAAP and IFRS Accounting
Standards in the accounting for outstanding equity shares and other
financial instruments that are within the scope of ASC 480-10
(including the SEC’s temporary equity guidance in ASC 480-10-S99-3A).
The table is followed by a detailed explanation of each
difference.
U.S. GAAP | IFRS Accounting Standards | |
---|---|---|
Redeemable equity securities | Financial instruments in the form of shares that embody an obligation to transfer assets are classified as liabilities only if the obligation is unconditional and the transfer of assets is therefore certain to occur. SEC registrants present equity-classified instruments that embody a conditional obligation to transfer assets as temporary equity. | Financial instruments in the form of shares that embody an obligation to transfer assets are classified as liabilities irrespective of whether the obligation is unconditional or conditional, with certain exceptions. |
Obligations to repurchase shares | Physically settled forward-purchase contracts that embody an obligation to
repurchase a fixed number of the issuer’s equity shares
for cash are accounted for at either the present value
of the redemption amount or the settlement value. Other
physically settled contracts that embody an obligation
to repurchase the issuer’s equity shares by transferring
assets (e.g., a physically settled written put option or
a forward purchase contract that provides the
counterparty with a right to require either physical or
net settlement) are accounted for at fair value. | Contracts that embody an obligation to repurchase the issuer’s equity shares by transferring assets are accounted for at the present value of the redemption amount if the issuer could be required to physically settle the contract by transferring assets in exchange for shares (e.g., a forward purchase or written put option contract that gives the counterparty the right to require either physical or net settlement). |
Obligations to issue a variable number of equity shares | A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by delivering a variable number of equity shares is classified as an asset or a liability if, at inception, the obligation’s monetary value is based either solely or predominantly on a fixed monetary amount, variations in something other than the fair value of the issuer’s equity shares, or variations inversely related to changes in the fair value of the issuer’s equity shares. | Contracts that will be settled in a variable number of shares are accounted for as assets or liabilities. |