The costs of an IPO that involves both issuing new shares and a stock market listing should be accounted for as follows:
Incremental costs that are directly attributable to issuing new shares should be deducted from equity (net of any income tax benefit) - IAS 32.37;
Costs that relate to the stock market listing, or are otherwise not incremental and directly attributable to issuing new shares, should be recorded as an expense in the statement of comprehensive income.
Costs that relate to both share issuance and listing should be allocated between those functions on a rational and consistent basis (IAS 32.38). In the absence of a more specific basis for apportionment, an allocation of common costs based on the proportion of new shares issued to the total number of (new and existing) shares listed is an acceptable approach.
IAS 32.37 requires that: "The costs of an equity transaction are accounted for as a deduction from equity (net of any related income tax benefit)". Raising additional equity through the offering and issuance of new shares is an equity transaction for this purpose, but the listing procedure is not. Only costs attributable to the offer of new shares are deducted from equity.
In practice, the offering and listing are usually a combined exercise. Certain costs, such as stamp duties and underwriters' fees, are clearly attributable to raising additional equity. Other costs, such as listing fees, relate only to the listing and should be expensed. However, the following costs should be considered:
Other professional advisers' costs; and
Prospectus design and printing costs.
These are likely to relate to both functions. Such shared costs should be allocated on a systematic basis between the share issue and the listing and then recorded in part as an equity deduction and in part as an expense. The following is a general indication as to some of the costs incurred in an IPO,...