Financial Instruments with Characteristics of Equity

The IASB met on 24 February 2026 to continue redeliberating the proposed requirements in the Exposure Draft Financial Instruments with Characteristics of Equity. The IASB discussed:

• the proposed amendments to IAS 32 Financial Instruments: Presentation related to the classification of derivatives on own equity when entities apply the fixed-for-fixed condition (Agenda Papers 5A–5B); and
• the project plan (Agenda Paper 5C).

Proposed amendments—Fixed-for-fixed condition (Agenda Papers 5A–5B)

The IASB tentatively decided to proceed with the proposed requirements set out in the Exposure Draft related to the classification of derivatives on own equity when entities apply the fixed-for-fixed condition, subject to minor drafting improvements and some targeted refinements, namely:

1. clarifying that a derivative meets the fixed-for-fixed condition if there is a fixed amount of consideration and either a fixed number of own equity instruments or a fixed exchange ratio.
2. clarifying that when a group entity issues a derivative on another group entity’s shares, the derivative could meet the fixed-for-fixed condition in the consolidated financial statements if the consideration amount is denominated in either:
   1. the functional currency of the group entity issuing the derivative; or
   2. the functional currency of the group entity whose shares are being delivered.
3. replacing the term ‘preservation adjustments’ with ‘adjustments that compensate the future holders of the equity instruments’ and clarifying that such adjustments (to the amount of consideration or number of own equity instruments or both) are consistent with the fixed-for-fixed condition only if they:
   1. aim to place the future holders in an economic position comparable to that of the current holders after a specified trigger event; and
   2. do not expose an entity to any additional risks compared to issuing the underlying equity instruments.
4. replacing the term ‘passage-of-time adjustments’ with ‘adjustments that are solely a function of time’ and clarifying that such adjustments (to the amount of consideration or number of own equity instruments or both) are consistent with the fixed-for-fixed condition only if they:
   1. are predetermined; and
   2. vary solely with the passing of time between potential exercise or conversion dates and do not expose the issuer to any other risks or variability—that is, the adjustment is not related to the time value of money.
5. withdrawing a proposed criterion for ‘passage-of-time adjustments’ in the Exposure Draft. This criterion related to fixing on initial recognition the present value of the amount of consideration exchanged for each of an entity’s own equity instruments.
6. clarifying that for an adjustment to be ‘predetermined’ as described in (d), the amount of consideration and number of own equity instruments to be exchanged on each settlement date are required, at inception of the derivative:
   1. to be specified in the contract; or
   2. to be determinable based on a formula specified in the contract, in which time is the only variable.
7. clarifying that if a contract specifies more than one adjustment that could affect the amount of consideration or the number of own equity instruments or both, each individual adjustment is required to meet the fixed-for-fixed condition. If any adjustment fails the fixed-for-fixed condition, an entity classifies the entire derivative as a financial asset or liability.
8. clarifying that adjustments described in (c) and (d) also apply to share-for-share exchanges—exchanging a fixed number of one class of own equity instruments for a fixed number of another class of own equity instruments.

All 13 IASB members agreed with these decisions.

Project update (Agenda Paper 5C)

The IASB received an update on the project plan. The IASB was not asked to make any decisions.