article banner

Liability or equity?

Andrew Watchman Andrew Watchman

Liability or equity? A practical guide to the classification of financial instruments under IAS 32

Classification of a financial instrument as either liability or as equity has an immediate and significant effect on an entity’s reported results and financial position. Liability classification for instance affects an entity’s gearing ratios and typically results in any payments being treated as interest and charged to earnings.

This guide addresses the key application issues to consider and includes interpretational guidance in certain problematic areas.