The International Accounting Standards Board (IASB) issued this week an amendment to IAS 32 Financial Instruments: Presentation.
The amendment addresses the accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. Previously such rights issues were accounted for as derivative liabilities. However, the amendment issued this week requires that, provided certain conditions are met, such rights issues are classified as equity regardless of the currency in which the exercise price is denominated.
The global financial crisis has led to an increase in the number of such rights issues as entities seek to raise additional capital. The IASB has moved swiftly to address this issue.
Entities are required to apply the amendment for annual periods beginning on or after 1 February 2010, but earlier application is permitted.