6 September 2008
International Accounting Standards Board
30 Cannon Street
London EC4M 6XH
United Kingdom
Subject: Comments on the IASB Discussion Paper (DP) Financial Instruments with
Characteristics of Equity
Consejo Mexicano para la Investigación y Desarrollo de Normas de Información
Financiera (CINIF) the accounting standards setter body in Mexico, is pleased to
comment on the IASB DP Financial Instruments with Characteristics of Equity.
General Comments
We believe the DP does not provide sufficient explanations and analysis to permit us to
conclude which of the three approaches we should support. It seems to us that the DP
should be developed when liabilities and equity are properly defined in the Conceptual
Framework project currently under development by IASB and FASB; if such definitions
are not adopted before finalizing the project on Financial Instruments with
Characteristics of Equity the basis for developing this project may be unclear and if a
final IFRS is issued under these circumstances perhaps once the Framework project is
completed it will be necessary to change the final IFRS on Financial Instruments with
Characteristics of Equity issued thus originating confusion among the users of the
financial statements. Thus, the definition of liabilities is paramount for setting the proper
rules on the accounting treatment of Financial Instruments with Characteristics of
Equity
We consider that the basic ownership approach would be the one preferred due to its been
the less complex to apply but at the same time we believe that the final decision on which
approach to adopt should not be based on simplicity but on proved advantages over the
other proposed approaches. For this purpose we recommend that field tests be performed
before selecting one approach to be proposed in the due process.
We believe that IAS 32 is superior to its equivalents in the USGAAP since among other
things, it is much less complicated than the extremely voluminous and complicated
USGAAP literature and
thus if convergence on Financial Instruments with
Characteristics of Equity requires to be attained in the short term the FASB should direct
its efforts, on a first stage, toward adopting IAS 32 which we believe has been applied
successfully. At the same time, additional efforts on the part of IASB and FASB should
continue in order to improve IAS 32. The improved IAS 32 could be adopted by
USGAAP replacing its current literature on the subject.
Currently IASB and FASB have each a residual concept of capital but the particular rules
are significantly different. Obviously, it is imperative to reconcile and eliminate the
differences in the concept of capital if converging rules on Financial Instruments with
Characteristics of Equity are to be adopted both by IASB and FASB. This seems to
imply to examine for purposes of the Conceptual Framework the definitions of assets
and liabilities.
The preceding paragraphs are the basis for our following responses to your questions.
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?
We do not believe the FASB Preliminary document contains sufficient information to
permit us a proper judgment as to the usefulness of any the three approaches and if
whether the information that will be produced by each one is going to be reliable and
useful. Thus, we do not support any of the three approaches.
(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 believe that only one approach should be adopted without any exceptions. For
the reasons stated in the preceding paragraph we cannot determine which
approach we should recommend for adoption.
(b) Are there alternative approaches to improve and simplify IAS 32 that you
will recommend? What are those approaches and what would be the benefit
of those alternatives to users of financial statements?
We do not consider that IAS 32 approach should be changed. Perhaps, depending
on the final definitions on assets and liabilities and the residual capital in the
Conceptual Framework changes will have to be made to IAS 32.
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?
We do not believe that the scope of the project is appropriate. For us, the scope of IAS 32
is more complete and therefore, preferable.
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?
We do not know of any type of entities or of any jurisdiction in which the principles
behind the basic ownership instrument may be inappropriate.
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 jurisdiction are they inappropriate, and why?
We do not know of any type of entities or of any jurisdiction in which the other
principles set out in the FASB Preliminary Views document may be inappropriate.
B5 Please provide comments on any other matters raised by the discussion paper.
Please see our comments under General Comments above.
Should you require additional information on our comments listed above, please contact
me at 00-52-55-55965633 or 00-52-55-55965634 or by mail at
acampana@cinif.org.mx with copy to fperezcervantes@cinif.org.mx
Sincerely,
C.P.C. J. Alfonso Campana R.
Investigator and Member of the Research
and Developing Center of the
Mexican Accounting Standards Board
Consejo Mexicano para la Investigacion y Desarrollo
de Normas de Informacion Financiera