Debt or equity? ASCG Comment Letter to the IASB

The Accounting Standards Committee of Germany has submitted its comment letter on the IASB Discussion Paper DP/2018/1 Financial Instruments with Characteristics of Equity to the IASB.

The letter generally welcomes the IASB’s approach to accounting for claims against an entity and the Board’s approaches to provide information via presentation and disclosures.

However, the ASCG rejects the IASB’s preferred approach presented in the discussion paper. For example, the ASCG criticizes the high complexity of the preferred approach, which according to the IASB should not lead to significant classification changes in accounting practice.

On the other hand, the economic effects resulting from classification changes explicitly mentioned in the discussion paper require more careful consideration by the IASB.

The ASCG is also questioning the preferred approach from a conceptual position, since the equity classification of certain put options on issued shares (like participations in German partnerships) under the new approach would still only be possible by way of an exception to the basic principle.