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:
proposes Amendment to FRS 25 – Classification of Rights Issues

Related reading

Fiona Westwood of Smith and Williamson.