Short-Term Fixes to Liabilities and Equity Accounting in the Works

June 23, 2017

As accountants continue to struggle with differentiating liabilities and equity, Financial Accounting Standards Board (“FASB”) members have agreed to take action. Last week, Chairman Russell Golden ordered the FASB’s research team to develop short-term solutions that the board could quickly implement, and also continuously monitor significant problems that may require long-term answers. Golden said this approach would take longer, but making targeted changes to Topic 480, Distinguishing Liabilities From Equity, will be helpful.

Possible changes may include new disclosures regarding financial instruments with characteristics of both equity and liabilities, streamlining how to split the measurement of hybrid instruments, and reorganizing certain aspects of the Codification of U.S. GAAP. One FASB staff senior project manager acknowledged getting rid of restatements altogether is impossible, but reducing them to a respectable level could alleviate investor concerns.

While a formal decision on improving the guidance wasn’t reached, some board members suggested that the FASB will resolve distinguishing between liabilities and equity when once it identifies fundamental differences among the two. Marc Siegel cautioned the FASB on taking another patchwork approach to fixing the guidance. In addition, fellow member Lawrence Smith believes progress could be made if the FASB amended guidance that causes the most frustrations.