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FASB adds item to EITF agenda on hybrid financial instruments

  • EITF (Emerging Issues Task Force) (mid blue) Image

Jul 17, 2013

During its July meeting with the EITF Agenda Committee, the FASB decided to add a project to the agenda of the EITF on determining whether the host contract in a hybrid financial instrument is more akin to debt or equity.

Determining whether instruments, such as a convertible preferred equity instrument with a fixed-price redemption feature, are more akin to debt or equity may require judgment because such instruments may have characteristics of both debt and equity. The guidance related to that analysis is in ASC 815-15-25-16 and 25-17 and ASC 815-10-S99-3. Because this guidance does not prescribe a single method for determining the nature of a host contract when evaluating whether an embedded derivative is clearly and closely related to the host, diversity in practice has emerged.

The FASB also decided that it would not add to the EITF’s agenda a project to clarify whether the deferred tax liability associated with an asset corresponding to an asset retirement obligation should consider the limited deductibility of the future asset retirement expenditures.

Click for the Minutes (link to the FASB website) of this meeting.

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