Proposed ASU on Distinguishing Liabilities from EquityBy
The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that would improve guidance for certain financial instruments with the characteristics of liabilities and equity, including convertible instruments and the derivatives scope exception for contracts in a company’s own equity.
The proposed update would reduce the number of accounting models for convertible debt instruments and convertible preferred stock. It would also revise the derivatives scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. Last, the update also would improve and amend the related disclosure and earnings-per-share guidance.
“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,” said 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.”