Financial Instruments with Characteristics of Equity

Date recorded:

The purpose of this session was to provide Board members with an overview of the main issues raised by constituents in the comment letters on the Discussion Paper Financial Instruments with Characteristics of Equity. The staff noted that it plans to come back with more detailed analyses of certain questions at future meetings. Furthermore, the staff explained to the Board that, at the session scheduled for 16 October 2008, it plans to identify possible candidates within the approaches that could be used as a starting point for future deliberations and that a final decision would have to be made at the Joint Board meeting later in October. At this session the staff asked for any questions on the significant comments and issues.



Significant comments and issues from the comment letters were:

  • General support for the objective of the project
  • General concern of the interaction with the concurrent Framework project
  • IAS 32 Financial Instruments: Presentation could be used as a starting point
  • The majority of commentators did not support the basic ownership approach (as preferred by the FASB)
  • The majority of commentators objected to a classification of a perpetual instrument as a liability
  • Classification under the basic ownership approach based on priority at liquidation contradicts the going concern assumption
  • Concerns over the classification of subsidiary basic ownership instruments in consolidated financial statements
  • The requirements for instruments with redemption requirements are not clear and not operational
  • Classification of cooperative shares compared to IFRIC 2 would be different for some instruments
  • Scope of FASB document is too narrow


One Board member asked the staff to clarify that the reassessed expected outcomes (REO) approach was mainly discarded because the elements recognised in the financial statements under this approach would not represent assets and liabilities under the Framework. This Board member also encouraged the staff to liaise with the derecognition project team on this issue as one of the proposed approaches of the derecognition project team would be an overriding the asset/ liability definition in the framework.

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