EFRAG comments on IFRIC Draft Interpretation D25 - Extinguishing Financial Liabilities with Equity Instruments
13 October 2009
EFRAG agrees with the draft consensus. However, EFRAG believes D25 should be measured at the fair value of the financial liability extinguished unless that amount cannot be reliably measured.
EFRAG welcomes the IFRIC’s attempts to provide accounting guidance in instances where an entity renegotiates the terms of a financial liability and issues equity instruments to its creditor to extinguish the liability partially or fully.
EFRAG broadly agrees with the draft consensus, with one exception. D25 proposes that an entity should measure the equity instruments issued at “the fair value of the equity instruments issued or the fair value of the liability extinguished, whichever is more reliably determinable.” EFRAG believes they should be measured at the fair value of the financial liability extinguished unless that amount cannot be reliably measured, in which case they should be measured at their fair value.
EFRAG noted two concerns regarding the draft interpretation:
The application of paragraph 49 of IAS 39 Financial Instruments: Recognition and Measurement in the context of the draft interpretation is not clear and the IFRIC is asked to clarify its applicability; and
The cost/benefit implications of the proposals for some common control transactions where the relative ownership of debt and equity remains the same before and after the conversion concerns EFRAG. Again, the IFRIC is asked to consider and address this concern.
© EFRAG - European Financial Reporting Advisory Group
