Page 1 of 2Our Ref.: C/FRSCSent through electronic mail20 December 2019Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,Classification of Liabilities as Current or Non-current (Amendments to IAS 1):
Liabilities with equity-settled featuresThe Hong Kong Institute of Certified Public Accountants ("HKICPA") is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,and ethics for professional accountants, in Hong Kong.The HKICPA supports the IASB's initiative to clarify the criteria for classification of aliability as current or non-current. The HKICPA also supports the IASB addressing thediversity in practice of the classification of liabilities with equity settlement features toimprove comparability. However, we want to highlight a concern with the IASB’s tentativedecision to clarify the statement in paragraph 69(d) of IAS 1 ‘terms of a liability that could,at the option of the counterparty, result in its settlement by the issue of equity instrumentsdo not affect its classification as current or non-current’. Specifically in July 2019, theIASB tentatively decided to clarify that this statement applies only to a counterpartyconversion option recognised separately from the liability as an equity component of acompound financial instrument.The HKICPA understands that many entities currently classify the host liability of aconvertible bond (CB) as current or non-current based on features such as earlyredemption options and contractual cash flows due in the next twelve months. However,conversion options classified as liabilities are not considered when making thisclassification as the exercise of such conversion options do not have any cash flow effectnor affect the liquidity position of the issuers.The HKICPA observes that the host liability of a CB1 will be classified differently applyingthe IASB’s tentative decision depending on whether the CB is denominated in the entity’sfunctional currency (non-current classification) or a foreign currency (currentclassification). It is unclear why there is a different current/non-current classification1 Assuming a maturity of more than twelve months that is convertible immediately atthe holders’ option into a fixed number of sharesPage 2 of 2when for both CBs there are no cash outflows in the next twelve months. The HKICPAnoted that some members of the IFRS Interpretations Committee also expressed asimilar view2. The HKICPA thinks that unless the IASB’s rationale for this difference isclear and logical, many entities and users of their financial statements will find theclassification outcome confusing and counterintuitive and may fail to apply theamendments as intended. Clarification should be made in the basis for conclusions orillustrative examples accompanying the amendments through a direct comparisonbetween these two CBs.In the illustrative examples accompanying IAS 1, we also recommend that the IASBillustrates how the principle in the amendments is applied to the current/non-currentclassification of a functional currency denominated CB with a maturity of more thantwelve months, convertible immediately at the holders’ option into fixed number of shares,subject to down round anti-dilution adjustment (conversion price adjusted downward tobe equal to the issue price of shares newly issued to another new investor) upon theoccurrence of anti-dilution event (the occurrence of which, i.e. share issue, is subject tothe control of the issuer). This is a common instrument globally for which we thinkconfusion is also likely to arise on application of the amendments. The HKICPA notedthat some IFRS Interpretations Committee members also brought to the IASB’s attentionsimilar instruments that depend on a triggering event3.The HKICPA and our stakeholders would be very grateful if you would consider therecommendations made above to help understanding of the rationale and the outcomeof applying the amendments to the classification of these common CBs. Without clearand logical rationale the diversity issue may not be easily resolved.If you have any questions regarding the matters and examples raised in this letter,please contact me, or Katherine Leung (katherineleung@hkicpa.org.hk), AssociateDirector of our Standard Setting Department.Sincerely,Christina NgDirector, Standard Setting Department2 IASB meeting July 2019 Agenda 29A Staff Paper paragraph 20(c)
3 IASB meeting July 2019 Agenda 29A Staff Paper paragraph 15
Letter to IASB Chairman on Classification of Liabilities as Current or Non-current: Liabilities with equity-settled features
下载原件Page 1 of 2Our Ref.: C/FRSCSent through electronic mail20 December 2019Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,Classification of Liabilities as Current or Non-current (Amendments to IAS 1):
Liabilities with equity-settled featuresThe Hong Kong Institute of Certified Public Accountants ("HKICPA") is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,and ethics for professional accountants, in Hong Kong.The HKICPA supports the IASB's initiative to clarify the criteria for classification of aliability as current or non-current. The HKICPA also supports the IASB addressing thediversity in practice of the classification of liabilities with equity settlement features toimprove comparability. However, we want to highlight a concern with the IASB’s tentativedecision to clarify the statement in paragraph 69(d) of IAS 1 ‘terms of a liability that could,at the option of the counterparty, result in its settlement by the issue of equity instrumentsdo not affect its classification as current or non-current’. Specifically in July 2019, theIASB tentatively decided to clarify that this statement applies only to a counterpartyconversion option recognised separately from the liability as an equity component of acompound financial instrument.The HKICPA understands that many entities currently classify the host liability of aconvertible bond (CB) as current or non-current based on features such as earlyredemption options and contractual cash flows due in the next twelve months. However,conversion options classified as liabilities are not considered when making thisclassification as the exercise of such conversion options do not have any cash flow effectnor affect the liquidity position of the issuers.The HKICPA observes that the host liability of a CB1 will be classified differently applyingthe IASB’s tentative decision depending on whether the CB is denominated in the entity’sfunctional currency (non-current classification) or a foreign currency (currentclassification). It is unclear why there is a different current/non-current classification1 Assuming a maturity of more than twelve months that is convertible immediately atthe holders’ option into a fixed number of sharesPage 2 of 2when for both CBs there are no cash outflows in the next twelve months. The HKICPAnoted that some members of the IFRS Interpretations Committee also expressed asimilar view2. The HKICPA thinks that unless the IASB’s rationale for this difference isclear and logical, many entities and users of their financial statements will find theclassification outcome confusing and counterintuitive and may fail to apply theamendments as intended. Clarification should be made in the basis for conclusions orillustrative examples accompanying the amendments through a direct comparisonbetween these two CBs.In the illustrative examples accompanying IAS 1, we also recommend that the IASBillustrates how the principle in the amendments is applied to the current/non-currentclassification of a functional currency denominated CB with a maturity of more thantwelve months, convertible immediately at the holders’ option into fixed number of shares,subject to down round anti-dilution adjustment (conversion price adjusted downward tobe equal to the issue price of shares newly issued to another new investor) upon theoccurrence of anti-dilution event (the occurrence of which, i.e. share issue, is subject tothe control of the issuer). This is a common instrument globally for which we thinkconfusion is also likely to arise on application of the amendments. The HKICPA notedthat some IFRS Interpretations Committee members also brought to the IASB’s attentionsimilar instruments that depend on a triggering event3.The HKICPA and our stakeholders would be very grateful if you would consider therecommendations made above to help understanding of the rationale and the outcomeof applying the amendments to the classification of these common CBs. Without clearand logical rationale the diversity issue may not be easily resolved.If you have any questions regarding the matters and examples raised in this letter,please contact me, or Katherine Leung (katherineleung@hkicpa.org.hk), AssociateDirector of our Standard Setting Department.Sincerely,Christina NgDirector, Standard Setting Department2 IASB meeting July 2019 Agenda 29A Staff Paper paragraph 20(c)
3 IASB meeting July 2019 Agenda 29A Staff Paper paragraph 15