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. 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. 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 (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. |