FASB Issues Two Proposals on Accounting for Financial Instruments

Norwalk, CT, October 27, 2000—The Financial Accounting Standards Board today issued a proposed Statement that would establish accounting standards for financial instruments with characteristics of liabilities, equity, or both. Comments on the proposed Statement are requested by March 31, 2001.

"Financial reporting has always had difficulty dealing with financial instruments that blur the line between debt and equity, especially compound instruments like convertible debt that combine both debt and equity components," explains FASB Senior Project Manager Diana Willis. "With financial innovation, both the number and complexity of such instruments are on the rise. This proposed Statement would clarify the distinction between debt and equity. It would also provide better information about the rights and obligations embedded in compound instruments by requiring separate reporting of debt and equity components."

Concurrent with the issuance of the Exposure Draft, Accounting for Financial Instruments with Characteristics of Liabilities, Equity, or Both, the Board also issued a proposed Statement today to amend FASB Concepts Statement 6. This proposed amendment would revise the definition of liabilities to include obligations that require or permit settlement by issuance of the issuer's equity shares but that do not establish an ownership relationship. Comments on this Exposure Draft, Proposed Amendment to FASB Concepts Statement No. 6 to Revise the Definition of Liabilities, an Amendment of FASB Statement No. 6, are requested by March 31, 2001.

During the comment period, one copy of each proposal will be available free of charge from the FASB Order Department, telephone (800) 748-0659. The proposals also will be available on this website under Exposure Drafts.