A Content Based Analysis of Comment Letters on the IASB Discussion Paper 'Financial Instruments with Characteristics of Equity'

Abstract

The distinction between equity and liabilities is a challenging question for international standard setters.

On this topic, the IASB and the FASB are developing a long-term project with the aim of addressing unresolved issues around classifying financial instruments as either equity or liabilities. With this regard, many approaches, which involve various effects on the gearing and on the reported earnings, have been proposed.

In its discussion paper “Financial Instruments with Characteristics of Equity” the IASB exposed the alternative methods previously presented by the FASB in former Preliminary Views. Among the three different approaches, the Basic Ownership Approach was recommended in consideration of its simplicity with the hope of reducing structuring opportunities.

Also the EFRAG gave its contribution to this debate by issuing its own discussion paper; it suggested a new classification method, the Loss Absorption Approach.

As any controversial case, it is thus interesting to have a deeper understanding of the process that will lead to the final accounting standard which should be, in future, adopted by both the IASB and the FASB.

In this research a content based analysis on comment letters sent in response to the discussion paper of the IASB will be developed. Two aspects will be studied, primarily the relation between the geographical provenance of respondents and their positions expressed in the comment letters, secondly the relation between the enterprise’s form (cooperative/versus non cooperative) of respondents and their own preference.