In this first education session on this topic, the Board discussed the three models for distinguishing liabilities and equity in the FASB Preliminary Views Document, namely:

• Ownership
• Ownership- settlement
• Reassessed expected outcome (REO)

The staff provided a detailed analysis and comparison of the three models covering the following aspects:

• Definition of equity
• Linkage and separation principles
• Initial and subsequent measurement
• Other issues: substantive features principle, separate presentation in equity, consolidation, reassessment and reclassification
• Illustrative examples for the equity/liability classification of different types of common stock, preferred stock, hybrid instruments and options/forwards

Further details are available in Observer Note 4 to 4H, available on the IASB Website.

The session consisted of Board members questioning the application of the three models, and comparing them with each other. The discussion particularly focused on the definition of equity, the treatment of convertible instruments, the linkage and separation criteria, and the definition of transaction price.

No decisions were made, and no strong views were expressed at this stage.