The Financial Accounting Standards Board is offering a preview of how it wants to draw a sharper line between equity and liabilities, specifically to address complex financial instruments that have blurred the distinction between the two bedrock accounting concepts for years.
The Board issued its preliminary views in “Financial Instruments with Characteristics of Equity” to get feedback on how it plans to simplify and improve financial reporting for complicated financial instruments that have certain characteristics of equity. The document says the Board is leaning toward an “ownership approach” to defining equity, limiting instruments that can be classified as equity to the lowest residual interests in an entity.
