Deloitte responded to the Accounting Standards Board’s exposure draft on Redeemable Preferred Shares Issued in a Tax Planning Arrangements issued in October 2014.

We agree with the conclusion that the AcSB reached that these instruments are liabilities. The fundamental question that we believe needs to be addressed, is whether there are transactions or circumstances where it is appropriate to provide an exception to liability treatment for certain types of redeemable equity instruments. We note that other major accounting frameworks, including IFRS, IFRS for SMEs and US GAAP, all provide exemptions from liability treatment for certain classes of puttable or redeemable equity (i.e. instruments redeemable at the option of the holder) which meet specified criteria. We believe it is appropriate for the AcSB to re-consider the cost/benefit analysis supporting the conclusions in the Exposure Draft requiring all redeemable equity instruments to be presented as financial liabilities as we believe that the benefits to continue to present redeemable equity instruments issued as part of estate freeze transactions as equity instruments outweigh the costs. In fact, our preliminary analysis has identified certain potential costs associated with presenting redeemable equity instruments associated with estate freeze transactions as financial liabilities that may not have been considered by the AcSB.

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