Rights issue rules undergo change

The UK’s accounting rule maker wants to change the rules when companies sell shares in order raise money.

The Accounting Standards Board is making a technical change to company rights issues. Rights issues occur when companies go cap in hand to shareholders when they need to raise revenue.

The issue is of particular concern as companies go to their shareholders to raise money during the global financial crisis.

The new rule requires “a rights issue involving the exchange of a fixed number of an entity’s own equity instruments for a fixed amount of cash denominated in a foreign currency to be classified as an equity instrument.”

The change follows similar alterations made by the International Accounting Standards Board in October 2009.

“The rationale is that the proposed amendment better reflects the substance of the rights issue, which is a transaction with shareholders in their capacity as owners,” the board said in a statement.

Read the full statement: ASB proposes Amendment to FRS 25 - Classification of Rights Issues