FASB issues preliminary views on liabilities versus equity

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05 Dec 2007

The US Financial Accounting Standards Board published its Preliminary Views (PV) on Financial Instruments with Characteristics of Equity.

The PV describes the FASB's preferred 'basic ownership' approach, which limits the instruments that can be classified as equity to the lowest residual interests in an entity. The holders of those instruments are viewed as the owners of the entity. All other instruments represent either liabilities or assets. An instrument that reduces the net assets available to the owners of the entity is a liability; and an instrument that enhances net assets available to the owners is an asset. Under this approach, forward contracts, options, and convertible debt would be classified as liabilities or assets. Comments are requested by 30 May 2008. Click for More Information on FASB's website, including free download of the PV document. The IASB plans to publish the FASB's Preliminary Views in early 2008 for comment by its constituents.


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