ASBE No. 37
Active
Presentation of Financial Instruments
Presentation of Financial Instruments is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
Distinguishing genuine liabilities from genuine equity
ASBE No. 37 governs the PRESENTATION of FINANCIAL instruments – MOST notably, the CLASSIFICATION of an ISSUED instrument as a FINANCIAL LIABILITY or as EQUITY, based on ITS substance RATHER than its LEGAL form. THE Standard also governs OFFSETTING of financial ASSETS and LIABILITIES. IT works ALONGSIDE ASBE No. 22 (classification and MEASUREMENT) to FORM the COMPLETE financial INSTRUMENTS framework, CLOSELY converged with IAS 32 internationally.
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Scope
Issued financial instruments and offsetting
This Standard applies to the PRESENTATION and CLASSIFICATION of FINANCIAL instruments an ENTERPRISE ISSUES, and the CIRCUMSTANCES under WHICH financial ASSETS and LIABILITIES may be OFFSET against EACH other.
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The Liability/Equity Classification Test
A contractual obligation to deliver cash or another financial asset
AN issued INSTRUMENT is CLASSIFIED as a FINANCIAL LIABILITY WHERE the ISSUER has a CONTRACTUAL obligation to DELIVER cash or ANOTHER financial ASSET to the HOLDER, or to EXCHANGE financial INSTRUMENTS under POTENTIALLY unfavourable CONDITIONS. ABSENT such an OBLIGATION, the INSTRUMENT is CLASSIFIED as EQUITY – CONSISTENT with IAS 32'S own substance-OVER-form classification TEST internationally.
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Compound Financial Instruments
Splitting a convertible bond into its liability and equity components
A "COMPOUND" instrument – SUCH as a CONVERTIBLE bond, COMBINING a LIABILITY component (the BOND obligation) and an EQUITY component (the HOLDER'S conversion OPTION) – is SPLIT at INITIAL recognition, WITH each COMPONENT presented SEPARATELY according to ITS own substance.
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Puttable Instruments – a Narrow Equity Exception
Certain puttable instruments may still qualify as equity
CERTAIN "PUTTABLE" instruments (GIVING the HOLDER the RIGHT to PUT the instrument BACK to the ISSUER for cash) MAY still be CLASSIFIED as EQUITY, PROVIDED they MEET specific, NARROW criteria (e.g. ENTITLING the HOLDER to a PRO RATA share of NET assets on LIQUIDATION, and BEING the MOST SUBORDINATE class of instrument) – a NARROW exception CONSISTENT with IAS 32'S OWN puttable-instrument EXCEPTION internationally.
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Offsetting Financial Assets and Liabilities
Two conditions must both be met
A FINANCIAL asset and a FINANCIAL liability are OFFSET (presented as a SINGLE net AMOUNT) ONLY WHERE the ENTITY has a CURRENTLY enforceable LEGAL right to SET OFF the recognised AMOUNTS, AND intends EITHER to SETTLE on a NET basis or to REALISE the asset and SETTLE the liability SIMULTANEOUSLY – BOTH conditions must be MET.
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Treasury Shares
Deducted from equity, no gain or loss on subsequent transactions
WHERE an ENTERPRISE reacquires ITS own equity INSTRUMENTS (TREASURY shares), THEY are DEDUCTED directly FROM equity – WITH NO gain or LOSS recognised in PROFIT or loss on the PURCHASE, sale, ISSUE, or CANCELLATION of an ENTITY'S own equity INSTRUMENTS.
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Worked Example – Classifying a Convertible Bond's Components
Splitting proceeds between liability and equity
Example: A convertible bond issuance
A company issues a convertible bond for RMB 100,000,000. A similar bond without the conversion feature would have a fair value of RMB 92,000,000.
The company allocates RMB 92,000,000 to the LIABILITY component (the STRAIGHT bond OBLIGATION), and the REMAINING RMB 100,000,000 − RMB 92,000,000 = RMB 8,000,000 to the EQUITY component (the CONVERSION option), presented SEPARATELY within OWNERS' equity.
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Worked Example – Applying the Offsetting Criteria
Both conditions must be met to present a net figure
Example: A receivable and payable with the same counterparty
A company has a RMB 5,000,000 receivable and a RMB 3,000,000 payable with the same counterparty, with a legally enforceable master netting agreement in place, and both parties intend to settle net.
Since BOTH conditions are MET (LEGAL right to SET OFF, and INTENTION to SETTLE net), the company presents a SINGLE net RECEIVABLE of RMB 5,000,000 − RMB 3,000,000 = RMB 2,000,000, RATHER than the TWO gross amounts SEPARATELY.
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Disclosure Requirements
What ASBE No. 37 requires
Classification basis for compound and puttable financial instrumentsAmounts of financial assets and liabilities offset in the Balance Sheet, and the related enforceable rightsTreasury shares held, and movements during the period
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Classifying an instrument as a liability, equity, or a compound combination of bothWhether the offsetting criteria are genuinely met
SIGNIFICANT ESTIMATES
Fair value of a straight (non-convertible) bond, underlying compound instrument splitting
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Relationship to IAS 32
Comparison – ASBE 37 vs IAS 32
FeatureASBE 37IAS 32
Liability/equity classification testSubstance over formSubstance over form – converged
Offsetting criteriaLegal right + intention to settle netLegal right + intention to settle net – converged
A GENUINELY thoroughly CONVERGED standard, MIRRORING IAS 32 CLOSELY.
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Statement Mapping
Where every financial instrument presentation event lands
EventStatement(s) affectedNotes
Compound instrument splitBS SCOELiability and equity components presented separately
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 22Recognition and Measurement of Financial Instruments – supplies the classification and measurement rules this Standard's presentation requirements build upon
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Quick-Reference Glossary
Compound financial instrument
An instrument combining both a liability component and an equity component, such as a convertible bond, split and presented separately.
Treasury shares
An enterprise's own equity instruments it has reacquired, deducted directly from equity with no gain or loss recognised.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 37 Presentation of Financial Instruments issued
Operative for periods beginning on or after 1 February 2007