The Accounting Standards Board (ASB) has today issued an exposure draft (“ED”) of an amendment to Financial Reporting Standard (FRS) 25 (IAS 32) ‘Financial Instruments: Presentation’, to change the classification from liabilities to equity of certain financial instruments, following a final amendment to International Accounting Standard (IAS) 32 ‘Financial Instruments: Presentation’ issued by the International Accounting Standards Board (IASB) in February 2008.

The IASB originally issued an ED proposing an amendment to IAS 32 in June 2006. These proposals made limited amendments to the IAS 32 classification of financial instruments puttable at fair value and obligations arising on liquidation. FRS 25 is the converged UK standard that corresponds to IAS 32. The ASB published an exposure draft in July 2006 proposing amendments to FRS 25 to ensure the standard’s continued convergence with IAS 32.

The IASB subsequently refined the proposals in the ED in response to comments from respondents. The IASB’s final amendment is wider in scope than the original proposals. In particular, the original criterion in the ED for a puttable financial instrument to be classified as equity if it was puttable at ‘fair value’ has been removed. The final amendment to the standard was published in February 2008 without a further formal consultation with constituents.

Despite this widening of scope, the ASB’s view is that the impact of the amendment in the UK will not be major. To date, the ASB has not identified particular situations where the amendment would result in misleading accounting, but believes it would be especially relevant to the funds industry, LLPs, and mutual and co-operative entities. However, it is concerned to ensure that there are no unintended consequences in the UK that have not been identified and is thus consulting constituents on this point.

As the ASB wants the amendments to apply from the same time as those of the IASB it is allowing a shorter than normal consultation period. Comments on any aspect of the Exposure Draft are requested by 16 May 2008.

1. The ASB is an operating body of the Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the ASB, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the Committee on Corporate Governance.
2. The main role of the ASB is to issue accounting standards. The ASB collaborates with accounting standard-setters from other countries and the International Accounting Standards Board (IASB) both in order to influence the development of international standards and in order to ensure that its standards are developed with due regard to international developments.
3. The ASB has eleven Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who represent a variety of interests, are part-time.
4. The Exposure Draft can be downloaded, free of charge, from the FRC website at: ASB Documents/Exposure Drafts. Hard copies of the Exposure Draft can be obtained at a cost of £10.00 (the same price as the IASB’s equivalent Exposure Draft), post-free, from FRC Publications, 145 London Road, Kingston upon Thames, Surrey KT2 6SR (020 8247 1264). Web: www.frcpublications.com.
5. Press enquiries should be addressed to Ian Mackintosh (Chairman) on 020 7492 2434, David Loweth (Technical Director) on 020 7492 2420 or Seema Jamil-O’Neill (Project Director) 020 7492 2422.