On January 7, 2019, the IIF Senior Accounting Group (SAG) submitted to the International Accounting Standards Board (IASB) its comments on the Discussion Paper on Financial Instruments with Characteristics of Equity.
The IASB published this paper to improve the classification between financial liabilities and equity instruments, which is currently defined by IAS 32. The paper also proposes to provide users with additional information through separate presentation and disclosures.
The key message conveyed to the IASB is that we are concerned that the costs of implementation of the proposals would outweigh their possible benefits. Indeed, we believe that, by and large, the current standard works well and does not raise specific questions. The proposals, on the other hand, would introduce new terms that may raise issues of interpretation like those encountered at the introduction of the current standard. In addition, the proposals do not resolve some key challenges that arise through the application of existing requirements, the accounting for some puttable instruments being one of the most important.
Consequently, we recommend in the letter that users’ concerns be addressed through targeted improvements to presentation and disclosures. We also underscore that regulations already require banks to disclose extensive and granular information about capital and TLAC instruments and, thereby, coordinated approaches between regulatory and accounting disclosures are key to provide users with consistent and useful information.
The SAG had the opportunity in December 2018 to outline these views before standard-setters and regulators at the last IIF International Accounting and Reporting Forum. Going forward, the SAG will be following closely any developments and continue to engage with standard-setters on this matter.