Paris, le 5 septembre 2008
IASB
30 Cannon Street
LONDON EC4M 6XH
For the attention of D.TWEEDY
Votre contact : I. FERRAND
 : 01.45.96.93.29
Fax : 01.49.74.27.28
Object : Comments to discussion paper “Financial instruments with characteristics of
equity
Sir
The Credit Mutuel is pleased to provide its comments on the discussion Paper of IASB “Financial
Instruments with Characteristics of Equity”.
We think that the three approaches proposed do not provide any particular improvements relative
to the current IAS 32.
In addition, they don’t permit to classify member’s cooperatives as equity.
If a choice has to be made and on condition that improvements are brought to ensure the
continuity with IAS 32 and its interpretations, particularly IFRIC 2, the Credit Mutuel is in favour of
the “ownership settlement approach”, which is the most closely to IAS 32.
We hope you’ll find these comments useful and would be pleased to provide any further
information.
Yours sincerely.
Confederation Nationale du Crédit
Mutuel (France)
DIRECTION GESTION - FINANCE
Isabelle FERRAND
Comments IASB – Crédit Mutuel (CNCM)
1
Comments to discussion Paper of IASB “Financial Instruments
with Characteristics of Equity” by CREDIT MUTUEL (France)
1. Introduction
Credit Mutuel considers that approaches proposed by FASB cannot apply to IFRS standard for
different reasons. First, they aren’t compliance with the IASB framework and complementary
discussions are necessary. Second, these approaches don’t improve current provisions of IAS 32
and moreover don’t’ permit to deal with its interpretations, in particular IFRIC 2 (Members’
Shares in Co-operative entities and Similar Instruments).
Furthermore, the analyze of equity instruments’ characteristics didn’t precisely discussed, contrary
to the alternative Discussion Paper issued by the PAAinE (Pro-Active Accounting group in
Europe), which deals with all important questions regarding the main characteristics of equity and
debt instruments.
The three approaches are not consistent with the IASB’s conceptual framework and don’t permit
to classify member’s shares in co-operative entities as equity. In addition, we consider that the
“basic ownership approach” is too restrictive. The “REO approach results in operational problems.
The “ownership settlement approach” is, in our opinion, the closest approach according to the
current provisions of IAS 32.
Finally, our current position is to keep IAS 32 and its interpretations, with some improvements, in
particular in introducing the concept of an issuer’s economic repayment obligation (or “economic
compulsion”) in order to qualify an issued instrument as a debt instrument, instead of applying the
strictly contractual obligation currently applied in IAS 32
2. Comments to questions IASB
B1. Are the three approaches expressed in the FASB Preliminary Views document a suitable
starting point for a project to improve and simplify IAS 32? If not, why?
(a)
Do you believe that the three approaches would be feasible to implement? If not, what
aspects do you believe could be difficult to apply, and why?
We consider that the three approaches don’t provide any particular improvements relative to the
provisions of the currently applicable IAS 32.
Anyway, it would be necessary, previously, to analyse the consistency of these approaches with the
IASB conceptual framework (currently, there is inconsistency because equity are positively
defined in the three approaches proposed by FASB while they are defined in the framework as the
residual interest after definitions of assets and liabilities components)
Moreover, these three approaches don’t’ deal with the IAS 32‘s interpretations such as IFRIC 2
(Members’ Shares in Co-operative entities and Similar Instruments). It’s illogical because cooperative shares are financial instruments, treated as equity for goods reasons, as it has been
validated by IFRIC 2
Comments IASB – Crédit Mutuel (CNCM)
2
Our opinion about each proposed approaches is the following:
-
The “basic ownership approach” is very restrictive, thus only “basic ownership instruments”
are eligible for the equity category. Moreover, only the most subordinate share class meets the
definition of “basic ownership instruments” with comparable difficulties between companies
and over time (when a new and more subordinate instrument is issued, the other instruments
initially presented as equity must be reclassified as liabilities). For this approach, the argument
of simplicity is a positive but not sufficient criterion.
-
The “ownership settlement approach” provides no worthy improvement relative to IAS 32. but
it is, in our opinion, the closest approach according to the current provisions of these standard,
except the fundamental reserve above... So, we ask additional reflections to reconcile the IAS
32 (and its interpretations) and the “ownership settlement approach”.
-
The “REO approach” raises significant operational difficulties and we consider it as too
complex.
In addition, we also have general remarks on proposed approaches:
-
What are the arguments in favour of a positive definition of equity (instead of the definition of
financial liabilities currently available in IFRS)? What is the link between this positive
definition of equity on these approaches and the current definition of liabilities in the IFRS
conceptual framework?
-
Why does the FASB prefer the proprietary view as opposed to the entity view, without
discussion?
-
The outcome of the instruments and consequences of the mandatory nature of this outcome has
not been considered (classification of certain instruments, in particular perpetual instruments
with mandatory interest payments).
-
Notions of “linkage” and “substance” are insufficiently explained.
If the choice has to be made, and on condition that improvements are brought to ensure the
continuity with IAS 32 and its interpretations, particularly IFRIC 2 , the Credit Mutuel is in favour
of the “ownership settlement approach”, which is the most closely to IAS 32..
However, we underline interest of the alternative Discussion Paper issued by the PAAinE (ProActive Accounting group in Europe), which deals with all important questions regarding the main
characteristics of equity and debt instruments. Interesting arguments have been developed about
the characteristics of equity instruments such as voting rights, subordination ranking, maturity and
permanence of funding resources. So, it would be useful that the Board analyses this proposition.
Comments IASB – Crédit Mutuel (CNCM)
3
(b)
Are there alternative approaches to improve and simplify IAS 32 that you would
recommend? What are those approaches and what would be the benefit of those
alternatives to users of financial statements?
In our opinion, it’s necessary to introduce the concept of an issuer’s economic repayment
obligation (or “economic compulsion”) in IAS 32 instead the current contractual obligation. This
concept of economic compulsion takes the contractual conditions and the economic environment
into account , both at inception and when contractual provisions are amended.
We also are in favour of the French standard setter position (Conseil national de la Comptabilité –
CNC) regarding equity derivatives.
B2. Is the scope of the project as set out in paragraph 15 of the FASB Preliminary Views
document appropriate? If not, why? What other scope would you recommend and why?
Paragraph 15-b mentions the “other instruments that are ownership interests in legal form”. We
consider that provisions finally adopted by the IASB must limit references to legal notions, which
necessarily differ between countries. Moreover, current IAS 32 makes no reference to ownership
interests in legal form.
B3. Are the principles behind the basic ownership instrument inappropriate to any types of
entities or in any jurisdictions? If so, to which types of entities or in which jurisdictions are they
inappropriate, and why?
The application of the ownership approach to Europeans co-operatives would result no ownership
interest at all. So, we seriously doubt that it reflects realities and that the FASB perspective will be
shared by the wide public
B4. Are the other principles set out in the FASB Preliminary Views document inappropriate to
any types of entities or in any jurisdictions? (Those principles include separation, linkage and
substance.) If so, to which types of entities or in which jurisdictions are they inappropriate, and
why?
The Credit Mutuel considers that IFRIC 2 provisions (Members’ Shares in Co-operative entities
and Similar Instruments) shall be kept because it allows shares issued by cooperative companies to
be presented as equity. This principle has been validated during the elaboration of IFRIC 2 and
must be considerate now.
B5. Please provide comments on any other matters raised by the discussion paper.
Appendix A of the IASB document presents financial instruments and their classification as debt
or equity without describing precisely their characteristics.
Comments IASB – Crédit Mutuel (CNCM)
4