The Accounting Standards Board (ASB) published on 16 November 2009 a Financial Reporting Exposure Draft (FRED) proposing an amendment to FRS 25 "Financial Instruments: Presentation". The proposed amendment requires a rights issue involving the exchange of a fixed number of an entity's own equity instruments for a fixed amount of cash denominated in a foreign currency to be classified as an equity instrument.

The proposed amendment follows the issue of "Classification of Rights Issues - Amendment to IAS 32" published by the International Accounting Standards Board (IASB) in October 2009. Under the current rules in FRS 25 if these rights issues are denominated in a foreign currency they should be classified as derivative liabilities. The proposals state that if a fixed number of rights, options or warrants are issued pro rata to an entity's existing shareholders for a fixed amount of foreign currency, these should be classified as equity regardless of the currency in which the exercise price is denominated.

It is proposed that the revised FRS will be effective for accounting periods beginning on or after 1 February 2010, earlier application is expected to be permitted. If an entity applies the amendment for an earlier period, it shall disclose that fact.

The Financial Reporting Exposure Draft can be found on the FRC website.