Once for the real financial accounting for financial instruments nerds*.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments was released a few days ago. This is the interpretation designed to cover debt for equity swaps, where an entity gives up some equity in exchange for the extinguishment of some or all its liabilities.

There will be no surprises in the final decision(s) – when you issue equity then that equity forms part of the consideration for the extinguishment, the shares issued are measured at fair value unless fair value cannot be measured, in which case they are measured as a residual amount on the liabilities (which are measured at fair value) and any resulting differences are put through P&L in the current period.

All of this follows what was expected and, to be honest, good sense.

The more astute of you may look at this and note that I am supporting the measurement of financial liabilities at fair value in this case – and you would be right, I normally do not. In this case, though, the liabilities are being extinguished, rather than being measured, so using fair value is appropriate.

The questions I would like to ask from a theoretical view is on the equity side – IFRIC 19 is clearly canvassing a situation where equity instruments cannot be fair valued, yet the new IFRS 9 says they must be.

Am I the only one to see a conflict here? I would guess this IFRIC will lapse on full implementation of IFRS 9.

Oh – and if the AASB can get a version of both of these up there soon I (and many others) would appreciate it.


*I like it that “financial” can be in there twice. I tried to work out how to get rid of it, but I did not

try too hard.