The EACB commented on the IASB exposure draft on Financial Instruments with Characteristics of Equity (FICE) and on the EFRAG draft comment letter on the IASB exposure draft on FICE.
The EACB welcomes the IASB's efforts to address challenges in the classification of financial instruments that combine characteristics of both liability and equity, as outlined in IAS 32, and appreciates the proposed improvements to disclosures under IFRS 7 and presentation requirements under IAS 1.
However, the EACB members have concerns regarding the approach outlined in the ED for addressing the IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments issue, namely regarding the classification of cooperative shares as equity instruments. Given the paramount importance of the topic for cooperative banks, we would like to stress a critical need of preventing any potential uncertainty stemming from IASB guidance in this regard. Specifically, there are doubts concerning the approach developed by the Board for evaluating the effects of relevant laws or regulations on the IAS 32 classification, i.e., to what extent the legal requirement is part of the contractual terms and must therefore lead to the identification of a financial liability or equity instrument.
We question the method of evaluating the effects of relevant laws or regulations on IAS 32 classification and advocate for an all-inclusive classification approach consistent with paragraph 4.60 of the Conceptual Framework.
The EACB is worried that the ED's proposal to consider only contractual obligations that go beyond legal obligations could lead to instruments like cooperative shares not being recognized as equity, exacerbating diversity in practice. We suggest revising paragraph 15A for a more coherent outcome and seek further clarity on how changes in legal requirements after contract signing might impact classification. While appreciating that the IASB does not intend to reconsider the guidance in IFRIC 2, the EACB urges the IASB to directly affirm within the IAS 32 amendments, not just in the Basis for Conclusions, that the approach remains consistent with IFRIC 2 principles, to ensure a clear framework for classifying cooperative shares as equity instruments.