Because of the pervasiveness of these issues, we strongly encourage the IASB, jointly with the FASB, to develop a new classification approach. Given the high degree of interdependence between this project and the joint projects on financial statement presentation and the conceptual framework, we recommend that these projects be closely coordinated. In addition, because the classification and measurement of certain instruments under the basic ownership approach would be a significant change to - and present more variability in - the statements of position and performance, the effects of these changes on regulatory guidance should be studied further, particularly when regulatory guidance is globally promulgated.

While each of the three classification approaches outlined in the Discussion Paper addresses some of the problems with existing accounting literature, we do not support any of these approaches in their current form. As more fully discussed in the attachment to this comment letter, we believe that each approach currently has a number of fundamental conceptual and operational deficiencies that need to be addressed before it can be an effective classification principle.

Although the basic ownership approach in its current design has certain fundamental deficiencies, we believe that approach – appropriately modified – is a suitable starting point for a project to improve and simplify IAS 32.1 In the Appendix, we propose certain modifications to the basic ownership approach that we believe are necessary to create an effective conceptual classification principle and to make the basic ownership approach operational and useful to financial statement users.