Equity instrument
IAS 32 classifies an issuer’s instrument based on the substance of contractual rights and obligations, not its label. A contractual obligation to deliver cash generally indicates a liability, while certain instruments settled in own shares need further analysis of the fixed-for-fixed requirements and applicable exceptions. In a compound instrument, allocate proceeds between liability and equity components as required. Ordinary shares with no mandatory redemption obligation are a common example.
Worked example
A company issues ordinary shares for cash and has no contractual duty to repay holders or deliver another financial asset. Assuming no other relevant contractual terms, the shares are equity instruments of the issuer.
Common mistake
Calling a mandatorily redeemable share equity solely because its legal name contains the word share.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |
