The International Accounting Standards Board (IASB) has recently published a number of discussion papers with the aim of clarifying some of its existing projects and providing a clearer view for investors. Jeroen Van Doorsselaere, Wolters Kluwer vice president of risk and finance, examines several key issues
Non-derivative financial instruments
Although financial statements serve multiple purposes, the major aim remains a transparent and comparable financial playing field. As part of the IASB’s financial instruments with characteristics of equity project, further guidance has now been discussed about the preferred approach to non-derivative financial instruments. The purpose is to make a distinction between equity and liabilities. Although preparers have argued that the current standard is sufficient, investors are signaling that they lack understanding of some core concepts - such as how to make a clear distinction between the two.
This would make it easier for investors to compare financial statements. The preferred approach of the IASB is guidance on clarifying elements, with the aim of helping preparers to standardise their classification. A point worth noting is that these clarifications do not interfere with the financial instrument on the financial asset side (these requirements are set out in IFRS 9 Financial Instruments). The rationale put forward breaks the assessment into two criteria:
