26 Chapter Street,
London,
SW1P 4NP
Tel: 020 7663 5441
Fax: 020 8849 2468
www.cimaglobal.com
Ms L Figgie
International Accounting Standards Board
30 Cannon Street
London
EC4M 6XH
E-mail: CommentLetters@iasb.org
5 September 2008
Dear Ms Figgie
Financial Instruments with Characteristics of Equity
The Chartered Institute of Management Accountants (CIMA) is pleased to have the
opportunity to comment on this consultation. CIMA is a global professional body
representing accountants in business. CIMA represents over 164,000 members and
students in 161 countries. CIMA is committed to high quality, global, principle-based,
neutral financial reporting standards and supports the widespread adoption of International
Financial Reporting Standards.
The Discussion Paper examines three possible approaches to distinguishing equity from
liabilities; however, the paper does not contain a discussion of the purpose of making this
distinction. Such a discussion would help to identify suitable criteria for assessing each
possible classification approach.
We also question whether it is correct to proceed with this project in isolation from the
Conceptual Framework project on the definitions of the elements of the financial statements.
It would be unfortunate if the outcome of the review of the basic concepts relating to the
definition of liabilities, which is one of the main objectives of the conceptual framework
project, was different to the conclusions reached in this project. It would be useful if the two
projects, at least, maintained strong links. Consideration could be given to halting this
project and switching resources to the conceptual framework project Phase B. This would
allow acceleration in the timetable of the latter project which currently does not envisage a
discussion paper being produced before the second half of 2009.
Of the three approaches identified in the discussion paper, we believe that the Reassessed
Expected Outcome method is the most technically correct but it is the most complex and we
would prefer simpler guidance.
The Basic Ownership model does benefit from simplicity but would suffer from issues
relating to consistent application. Using this model, we believe that it would be possible for
the same instrument to be classified as equity in one instance but as a liability in another
case depending upon the characteristics of other instruments in the same company.
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The Ownership Settlement approach appears to be the closest to current practice.
Appendix A to the discussion paper is a comparison of existing and proposed approaches
and there are very few differences between the classifications arrived at using the
ownership settlement approach and that derived using the principles of IAS 32. This again
leads us to question whether there is sufficient justification at this time to proceed with this
project in advance of addressing the basic concepts.
We would be pleased to discuss with you any aspect of this letter that you may wish to raise
with us.
Yours sincerely
Nick Topazio
Jim Metcalf
Nick Topazio
Jim Metcalf
Business & Financial Reporting Specialist,
Financial Reporting Development Group
CIMA
London
Chairman of Financial Reporting Development
Group
CIMA
London
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