The Financial Accounting Standards Board has released its preliminary views on financial instruments with the characteristics of equity in an effort to simplify a patchwork of 60-plus pieces of guidance.
The proposal limits the instruments that can be classified as equity to the lowest residual interests in an entity. The holders of the instruments are viewed as the owners of the entity. All other instruments represent either liabilities or assets. An instrument that reduces the net assets available to the owners of the entity is a liability; and an instrument that enhances net assets available to the owners is an asset.
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