FASB Proposes to Improve Guidance on Distinguishing Liabilities from Equity

The FASB has issued an exposure draft proposing to improve guidance on distinguishing liabilities from equity, including convertible instruments. Stakeholders are asked to review and provide comment on the proposed Accounting Standards Update (ASU)  by October 14, 2019.

“During the FASB’s agenda consultation project a few years ago, stakeholders described liabilities and equity guidance as overly complex, internally inconsistent, and the source of frequent financial statement restatements,” stated FASB Chairman Russell G. Golden. “We believe the proposed ASU would help reduce complexity and improve understandability in this area while providing financial statement users with more relevant information.”

To achieve this objective, the FASB targeted its efforts to improve the guidance on both convertible instruments and the derivatives scope exception for contracts in a company’s own equity.

The proposed ASU would reduce the number of accounting models for convertible debt instruments and convertible preferred stock. It would revise the derivatives scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The proposed ASU also would improve and amend the related disclosure and earnings-per-share guidance.

The press release on this matter is available at:

https://fasb.org/cs/Satellite?c=FASBContent_C&cid=1176173046157&pagename=FASB%2FFASBContent_C%2FNewsPage

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