IFRIC publishes proposed guidance on members’ shares in co-operative entities

The International Financial Reporting Interpretations Committee (IFRIC) has released for public comment a draft Interpretation D8 Members’ Shares in Co-operative Entities giving guidance on the classification of members’ shares in co-operative entities as either financial liabilities or equity.

The publication of this draft Interpretation is a direct response to concerns expressed by constituents that the classification of members’ shares in co-operative entities under International Accounting Standard (IAS) 32 Financial Instruments: Disclosure and Presentation is unclear.

Members’ shares in co-operative entities and similar instruments have some characteristics of equity, including voting rights and rights to participate in dividend distributions. They also give the holder the right to request redemption for cash or another financial instrument, although that right may be subject to limits on whether the instruments will be redeemed. The draft Interpretation proposes guidance on how those redemption terms should be evaluated in determining whether the financial instrument should be classified as financial liabilities or as equity.

The proposals are open for public comment until 13 September 2004.

Introducing the proposals, the Chairman of the IFRIC, Kevin Stevenson, said:

The proposals that were developed after discussions with representatives of European Associations of Co-operative Banks address concerns raised by constituents about the application of IAS 32 to members’ shares in co?operatives. The proposed Interpretation clarifies that the classification of members’ shares as financial liabilities or as equity depends upon the characteristics of such shares, especially the redemption features.

Subscribers to the IASB’s Comprehensive Subscription Service can view the draft Interpretation from the secure online services area of the IASB’s Website ( From 1 July 2004 the complete text of the draft Interpretation will be freely available from the Website.

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