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Deloitte comments on FASB's proposed changes to guidance on liabilities and equity

Published on: Feb 03, 2017

Deloitte & Touche LLP comments on the FASB's Proposed Accounting Standards Update, Distinguishing Liabilities From Equity (Topic 480): I. Accounting for Certain Financial Instruments With Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception, which was issued in December 2016.

An excerpt from the comment letter is shown below:

We support the Board’s efforts under its simplification initiative to improve aspects of U.S. GAAP that are unnecessarily complex and costly. Similarly, we support the aim of the proposed ASU and certain of its key provisions because they further the Board’s simplification objective. We concurrently acknowledge that some aspects of the proposed amendments would add complexity to an accounting model that is already complex and prone to misunderstanding by preparers, practitioners, and other stakeholders. We believe that to limit such complexity, the Board should modify or remove certain of the proposed ASU’s provisions before it finalizes the amendments. To this end, this letter suggests our modifications to the proposed approach for the Board’s consideration.

As discussed in our letter of October 17, 2016, in response to the FASB’s Invitation to Comment, Agenda Consultation (File Reference No. 2016-290), we believe that the FASB should add to its agenda a broad project on distinguishing liabilities from equity. We believe that as part of such a project, the Board should comprehensively address the conceptual and practical issues associated with the classification of different types of instruments and features. The Board’s objective should be to replace the piecemeal, fact-specific guidance in U.S. GAAP with a robust, coherent, and internally consistent set of principles. Our support for certain of the key provisions in the proposed ASU, therefore, is based on the premise that they will serve to simplify the application of existing U.S. GAAP as an interim solution pending the completion of a broad project on liabilities and equity.

For more information, see the full text of the comment letter which is available below.

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