The International Accounting Standards Board (IASB) has this week published for public comment proposals on the classification of rights issues.
The proposals seek to clarify the accounting treatment when rights issues are denominated in a currency other than the functional currency of the issuer. Current practice appears to require such issues to be accounted for as derivative liabilities. The proposals state that if such rights are issued pro rata to an entity's existing shareholders for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated.
Many rights issues are denominated in currencies other than the functional currency of the issuer, and the global financial crisis has led to an increase in the number of such issues as entities seek to raise additional capital. The IASB has therefore accelerated its work on this aspect of its comprehensive response to the crisis. The proposals are set out in an exposure draft of an amendment to IAS 32 Financial Instruments: Presentation, which is open for comment for 30 days and if adopted will apply retrospectively.
The proposals in the exposure draft Classification of Rights Issues are open for comment until 7 September 2009.