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FASB proposes improvements re distinguishing liabilities from equity

The US Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) intended to improve guidance for certain financial instruments with characteristics of liabilities and equity, including convertible instruments. Stakeholders are asked to review and provide comment on the proposed ASU by 14 October 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,” 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.”

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.

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