The European Union (EU) Council of Ministers has moved quickly to write into
European law a new amendment to the International Accounting Standard (IAS) 32
on financial instruments.
This was only approved by the International Accounting Standard Board (IASB)
in October and will come into force worldwide on February 10. But the council
has accepted a quick move by the European Commission to enshrine it immediately
in EU accounting rules.
Its relevance to the 27 member state EU is clear: it clarifies how to account
for certain rights when financial instruments are denominated in a currency
other than the functional currency of the issuer.
A briefing note from Deloitte explained: “For rights issues offered for a
fixed amount of foreign currency current practice appears to require such issues
to be accounted for as derivative liabilities.”
It continued that under the amendment, where these rights are issued pro rata
to a company’s existing shareholders in the same class for a fixed amount of
currency, “they should be classified as equity regardless of the currency in
which the exercise price is denominated.”
The decision was fast-tracked using an EU decision-making procedure where EU
ministers can only stop a Commission proposal if they think the EU executive has
exceeded its powers.
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