Liabilities and Equity
Where are we in the project?
On 28 February the IASB published a discussion paper Financial Instruments with Characteristics of Equity. The discussion paper is open for comment until 5 September 2008.
View the Discussion Paper and submit a Comment Letter
The discussion paper comprises an IASB Invitation to Comment and the FASB Preliminary Views document.
The IASB has not deliberated any of the proposals in the FASB Preliminary Views document and does not have a preliminary view.
In the Invitation to Comment the IASB provides background information relevant to International Financial Reporting Standards (IFRSs), explores the potential effects of the FASB proposals on IFRSs and asks questions that are in addition to those asked in the FASB document.
The goal of the discussion paper is to solicit the views of interested parties on whether the proposals in the FASB document are a suitable starting point for the IASB’s deliberations or whether there are alternative approaches.
Next due process step
The project is currently on the IASB’s research agenda. During the comment period, the IASB will consider a project proposal to add this project to its active agenda.
If the project is added, the IASB intends to undertake it jointly with the FASB. The boards will work together to develop and publish an exposure draft.
Why are we undertaking this project?
Constituents have asked the IASB to simplify and improve the accounting for financial instruments. This is one of three long term projects on the IASB’s agenda to address issues related to financial instruments.
IAS 32 Financial Instruments: Presentation provides the relevant guidance for distinguishing between asset and liability instruments (non-equity instruments) and equity instruments.
In general, there are two broad classes of criticisms that arise from the distinction set out in IAS 32:
(a) how the principles in IAS 32 should be applied and
(b) whether application of those principles results in an appropriate distinction between equity instruments and non-equity instruments.
Project objectives
The objective of this project is to improve financial reporting for financial instruments with characteristics of equity, non-equity or both by providing a more understandable, relevant and comparable depiction of those instruments.
The IASB and the FASB are conducting this project as a modified joint project. In a modified joint project, one board leads the initial stage. The FASB led the research stage of this project and published a Preliminary Views document Financial Instruments with Characteristics of Equity in November 2007.
View the FASB project Web pages, including the FASB PV.
Is this project part of the Memorandum of Understanding?
Yes, this project forms part of the Memorandum of Understanding (‘MoU’) between the IASB and the FASB. The MOU sets out a Roadmap of Convergence between IFRSs and US GAAP.
One of the goals set out in the MoU is to have issued one or more due process documents relating to a proposed standard on the distinctions between financial liabilities and equity instruments by 2008.
Related projects
In addition to this project, there are two other long-term projects on financial instruments:
There are other projects that are related to this project: