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Project Updates
Liabilities and Equity
Last Updated: December 5, 2007 (Updated sections are indicated with an asterisk *)
The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
*Project Objective
*Due Process Documents
*Next Steps
*Summary of Tentative Decisions to Date
Board Meeting/Public Meeting Dates
Related FASB Articles
*Background Information
Contact Information
*PROJECT OBJECTIVE
The objective of the Liabilities and Equity project is to improve financial reporting for financial instruments with characteristics of equity, liabilities, or both, and assets, by providing a more complete and representational depiction of those financial instruments in the statement of financial position. By improving classification, measurement, and presentation guidance, and requiring disclosures in the notes to the financial statements, the Board hopes to provide investors with decision-useful information about a reporting entity’s obligations to transfer assets or issue shares. The Board also will use this project to further converge with accounting standards developed by the IASB.
*DUE PROCESS DOCUMENTS
Exposure Draft—Liabilities and Equity
In October 2000, the Board issued an Exposure Draft, Accounting for Financial Instruments with Characteristics of Liabilities, Equity, or Both.
Comment Letters Received
In May 2003, the Board issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
FAS 150
FSPs Related to Statement 150
The following are final FASB Staff Positions (FSPs) related to Statement 150, including one that defers effective dates and others that address implementation questions:
- FSP FAS 150-1, Issuer's Accounting for Freestanding Financial Instruments Composed of More Than One Option or Forward Contract Embodying Obligations under FASB Statement No. 150, posted October 16, 2003.
FSP FAS 150-1
- FSP FAS 150-2, Accounting for Mandatorily Redeemable Shares Requiring Redemption by Payment of an Amount That Differs from the Book Value of Those Shares, under FASB Statement No. 150, posted October 16, 2003.
FSP FAS 150-2
- FSP FAS 150-3, Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, posted November 7, 2003.
FSP FAS 150-3
- FSP FAS 150-4, Issuers' Accounting for Employee Stock Ownership Plans under FASB Statement No. 150, posted November 7, 2003.
FSP FAS 150-4
- FSP FAS 150-5, Issuer's Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable, posted June 29, 2005.
FSP FAS 150-5
FSP FAS 150-3 defers the effective date for certain provisions of Statement 150 relating to certain mandatorily redeemable financial instruments. The Board decided to reconsider implementation issues and, perhaps, classification or measurement guidance for instruments subject to that deferral as part of a more comprehensive project on liabilities and equity.
View a table of revised Statement 150 effective dates as a result of that deferral
Exposure Draft—Concepts Statement 6
In October 2000, the Board issued an Exposure Draft, Proposed Amendment to FASB Concepts Statement No. 6 to Revise the Definition of Liabilities.
Comment Letters Received
*SUMMARY OF TENTATIVE DECISIONS TO DATE
The Board issued a Preliminary Views, Financial Instruments with Characteristics of Equity, on November 30, 2007. The comment period ends on May 30, 2008.
*NEXT STEPS
The Board will consider comments from respondents to the Preliminary Views.
BOARD MEETING AND PUBLIC MEETING DATES
The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final Statement, Interpretation, FSP, or Statement 133 Implementation Issue.
The following are links to the minutes for each meeting:
| October 10, 2007 |
Board Meeting—Comment period and classification of dividends payable |
| June 27, 2007 |
Board Meeting—Equity classified instruments under the ownership approach. |
| May 8, 2007 |
Board Meeting—Settlement of indirect ownership instruments and the Board's preferred approach in Preliminary Views document. |
| January 3, 2007 |
Board Meeting—Short-Term Improvements Based on Certain L&E Decisions |
| November 15, 2006 |
Board Meeting—Follow-Up Issues Related to the REO Approach |
| October 23, 2006 |
Board Meeting—Informational Meeting to Update the IASB |
| August 16, 2006 |
Board Meeting—Display under the Ownership Approach |
| March 15, 2006 |
Board Meeting—Objectives and Principles for Linkage and Substantive Features |
| November 29, 2005 |
Board Meeting—Measurement and Display of Instruments Not Separated and a Description of the Nonequity Component |
View the examples, flowchart, and balance sheet presented at the November 29, 2005, meeting.
| October 5, 2005 |
Board Meeting—Separation Criteria and Obligation First Approach |
| June 29, 2005 |
Board Meeting—Definition of Multiple-Component Instruments and Separation Criteria |
| May 11, 2005 |
Board Meeting—Display and Measurement, Issuance Costs, Recognition of Forward Contracts, and Subsequent Reclassification Assessments |
| April 6, 2005 |
Board Meeting—Resource Group Issues for Milestone Draft |
| March 30, 2005 |
Board Meeting—Resource Group Issues for Milestone Draft |
| March 2, 2005 |
Board Meeting—Resource Group Comment Letter Analysis on the Milestone Draft |
| December 2, 2004 |
FASAC Meeting Handout |
| December 1, 2004 |
SBAC Meeting Handout |
| November 24, 2004 |
Board Meeting—Determining a Direct Ownership Relationship and Settlement Alternatives |
| November 3, 2004 |
Board Meeting—Distinguishing Assets from Equity and Settlement Alternatives |
View the table, flowchart, and examples presented at the November 3, 2004, meeting.
| October 6, 2004 |
Board Meeting—Approaches in Distinguishing Liabilities from Equity for Single-Component Instruments |
| July 16, 2004 |
Board Meeting—Possible Principles for Distinguishing Liabilities and Assets from Equity |
| June 22, 2004 |
FASAC Meeting Handout |
| May 26, 2004 |
Board Meeting—REO Approach—Decision to Pursue |
| May 18, 2004 |
Project Resource Group Meeting |
| May 5, 2004 |
Board Meeting—REO Approach Presentation |
| February 18, 2004 |
Board Meeting—Conceptual Language, Hierarchy, and Remaining Simple Instrument Issues |
| January 27, 2004 |
Liaison Meeting—To discuss how the Board’s decisions on the Combinations Between Mutual Enterprises and the Liabilities and Equity projects would impact mutual enterprises. |
| January 21, 2004 |
Board Meeting—Unconditional Simple Instruments |
| January 14, 2004 |
Board Meeting—Unconditional Simple Instruments |
| December 3, 2003 |
Board Meeting—Distinction between Equity and Liabilities or Assets |
| October 1, 2003 |
Board Meeting—Financial Instrument Examples for Phase 2 |
View the examples and graphs presented at the October 1, 2003, meeting.
RELATED FASB ARTICLES
Article from The FASB Report—"Deferred Effective Date for Certain Provisions of Liabilities and Equity Project"
(February 2004)
Issue Highlights from Status Report—"FASB Addresses Issues Related to the Classification of Compound Financial Instruments That Have Characteristics of Liabilities and Equity"
(March 30, 2001)
BACKGROUND INFORMATION
This project is one part of the Board’s broader initiative to improve the accounting for financial instruments. In 1997, the Board decided to resume deliberations on issues raised in a 1990 Discussion Memorandum, Distinguishing between Liability and Equity Instruments and Accounting for Instruments with Characteristics of Both. The stated objective of the project was to improve the transparency of the accounting for financial instruments that contain characteristics of liabilities, equity, or both. The following were among the reasons why the Board decided to undertake this project:
- To respond to concerns about the inconsistent classification of certain financial instruments in the statement of financial position:
Financial instruments with characteristics of liabilities were being presented either entirely as equity or between the liabilities section and the equity section of the statement of financial position. However, financial instruments with characteristics of equity also were being presented between the liabilities section and the equity section of the statement of financial position. Additionally, certain financial instruments with characteristics of both liabilities and equity were being classified entirely as liabilities or entirely as equity.
- To accelerate convergence of the accounting standards used in different nations:
The Canadian Institute of Chartered Accountants (CICA), the Australian Accounting Standards Board (AASB), and the International Accounting Standards Board (IASB) already require that the components of a financial instrument be classified as liabilities or as equity based on their characteristics. This project will work towards convergence of accounting standards related to financial instruments with characteristics of liabilities and equity.
In October 2000, the Board issued two Exposure Drafts, Proposed Amendment to FASB Concepts Statement No. 6 to Revise the Definition of Liabilities, and Accounting for Financial Instruments with Characteristics of Liabilities, Equity, or Both. In December 2001, they began redeliberations of the issues in the Exposure Drafts based on the comments received.
The FASB Exposure Draft, Proposed Amendment to FASB Concepts Statement No. 6 to Revise the Definition of Liabilities, would require entities to classify certain financial instruments as liabilities, even though they did not meet the definition of a liability under FASB Concepts Statement No. 6, Elements of Financial Statements. However, after reviewing the comment letters, the Board decided to defer issuing the amendment until it concluded its deliberations on the remaining issues of the project.
In 2002, the Board completed redeliberations on the provisions in the Exposure Draft, Accounting for Financial Instruments with Characteristics of Liabilities, Equity, or Both, that pertained to the classification of certain freestanding instruments. Although the Board had not yet addressed several other issues in the Exposure Draft, including separation, conceptual issues, and accounting for noncontrolling interests, it decided that it needed to issue a limited-scope Statement to provide timely and necessary guidance for certain troublesome instruments. Therefore, in May 2003, the Board issued Statement 150.
Statement 150 improves the accounting for certain financial instruments that were accounted for as equity under previous guidance. It requires entities to classify those instruments as liabilities (or assets in some circumstances) in their statements of financial position. Some of the provisions of Statement 150 are consistent with the current definition of liabilities in Concepts Statement 6. The remaining provisions of Statement 150 are consistent with the Board's proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer.
In July 2003, the Board decided to approach the second phase of the project on a “fresh start” basis by first dealing with definition and classification questions before taking up issues related to the unit of accounting—for example, whether to separate financial instruments and, if so, how to separate them (using measurement methods). It also decided to:
- Expand the project scope to include financial instruments (and, potentially, components of financial instruments) with characteristics of both assets and equity
- Amend and improve its definitions of liability, equity, and perhaps assets in Concepts Statement 6, such that decisions made in Statement 150 are consistent with those definitions.
The FASB and the IASB are conducting this project under a modified joint approach. The FASB will issue the initial due process document in the form of a Preliminary Views, which the IASB will publish for comment by its constituents. The Boards plan to use the input received on the initial due process documents as the basis for a joint project to develop a common standard of accounting and reporting. In that joint project, the Boards will deliberate and develop a proposed Statement, to be followed by joint redeliberations and development of a common final Statement.
In 2004, the FASB and IASB added a joint project to their agendas to develop an improved, common conceptual framework. The decisions made in the Liabilities and Equity project will be considered in conjunction with the proposed amendments that will be considered within the conceptual framework project.
CONTACT INFORMATION
Ronald Lott
Senior Technical Advisor
rwlott@fasb.org
Jill Switter
Assistant Project Manager
jmswitter@fasb.org
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