The next meeting of the Emerging Economies Group (EEG) is scheduled for May 2025, at which the group will review the results of the International Accounting Standards Board’s (IASB) further discussions on proposals regarding financial instruments with characteristics of equity (the FICE project). The EEG meeting will address issues of presentation and disclosure in light of the feedback received from stakeholders.

We provide an overview of the main proposed changes and potential clarifications suggested by the IASB, with the aim of providing high-quality information to users of financial statements.

Objectives and Approaches of the FICE Project

The FICE (Financial Instruments with Characteristics of Equity) project aims to improve the transparency and quality of information provided in financial statements regarding financial instruments that exhibit characteristics of both financial liabilities and equity. The main objectives of the project are:

• improving the presentation and disclosure of information;
• clarification of the classification principles under IAS 32;
• resolving practical challenges in applying the standard.

The final amendments are expected to be published in 2026.

Adjustments to the presentation of profit or loss for owners of different classes of equity

Proposed Changes and Feedback

As part of the improvements to IAS 1, the IASB proposed presenting the profit or loss attributable to different classes of equity holders separately in the statement of comprehensive income. It was proposed to distinguish the following categories of equity holders:

• common shareholders of the parent company;
• other owners holding profit-sharing instruments (participating instruments);
• holders of non-participating instruments;
• non-controlling interests.

Investors supported these proposals, but other stakeholders pointed out the complexity of implementation and the lack of guidance for calculating such distributions.

The IASB's Enhanced Approach (Approach A)

In an effort to reach a compromise, the IASB proposed the so-called Approach A, under which the allocation of profit in the income statement should be made between:

• common shareholders;
• holders of other instruments with a right to participate in profits (participating);
• holders of non-participating instruments;
• non-controlling interests.

This approach is more closely aligned with the principles of IAS 33, “Earnings Per Share,” and reduces the burden on companies by providing a simpler calculation method.

An example of implementing Approach A:

This will allow investors to better understand the company's ownership structure and the potential impact of various classes of securities on the returns on common stock.

Additional Information for the Presentation

To improve the quality of information, the IASB also proposes providing additional disclosures in the notes regarding the terms and characteristics of equity instruments, including profit-sharing terms and accumulated dividends for non-participating instruments.

Clarification Regarding Disclosure (IFRS 7)

Key Areas of Disclosure

The proposed amendments to IFRS 7 require disclosure of information in the following categories:

1. Terms and characteristics of equity instruments and financial liabilities.
2. Priority of claims on equity instruments and liabilities.
3. Maximum dilution of common stock.

Clarification Regarding Disclosure of Information

In response to criticism regarding the complexity and excessive nature of disclosures, the IASB proposes the following clarifications:

• the ability to create cross-references to avoid duplication of information;
• reducing the scope of disclosures by excluding certain characteristics that are already presented in other disclosures;
• shifting the focus from determining the priority of claims arising from liquidation to information based on the current terms of the contracts;
• Expanding the examples related to maximum dilution, including scenarios involving an unspecified number of shares.

Example of disclosing the maximum possible dilution of shares:

Timeframe for final approval of the changes

The IASB sees no need to expedite the adoption of these changes, given the upcoming implementation of IFRS 18 effective January 1, 2027. Final decisions will be made as part of a comprehensive package of changes to FICE in 2026.

Summary

The clarifications proposed by the IASB regarding the presentation and disclosure of information on financial instruments with equity characteristics will significantly improve the transparency and quality of information available to investors, while maintaining a balance between the costs to preparers and the needs of users of financial statements. At the same time, further discussion will help refine the details and ensure the practical applicability of the new requirements.

Relevant webinars on the topic of the publication:

“Financial Instruments in IFRS: Accounting from Recognition to Disposal, with Examples” >>> https://amsfo.com.ua/course/fin-instrumenty-v-msfz/

© Olena Kharlamova