The FASB staff presented the Reassessed Expected Outcomes (REO) approach for determining classification, unit of account, measurement, and earnings per share for financial instruments involving an issuer's own shares and a list of 'touchstones' developed by the FASB staff based on objections heard from FASB Board members and others to various possible approaches to resolving liability and equity issues.

This approach breaks down equity-linked instruments into its base components of ordinary share equity, liabilities, and assets by analysing the expected future cash flows and other flows of economic resources at each reporting date. A financial instrument or portion thereof would only be classified as equity if its expected payment varies directly with the share price.

This method would, therefore, change the existing liability and equity distinction, which is based on amounts repayable in cash. Although the allocation would be recalculated at each reporting date, the reallocation would be based on the original proceeds, and the only effect of share price movements would be to change expected outcomes.

The Board expressed concern about the approach and, in particular, about the manner in which this would change the nature of accounting for equity and liabilities. They did, however, support exploring the approach further in conjunction with the FASB.