If It Quacks Like A Duck: Financial Instruments with Characteristics of Equity - Still Equity for FASB?


In thinking about a financial instrument, issuers, financial intermediaries and their advisers have been

accustomed to considering the characteristics of the financial instrument. Does the financial instrument have

“equity-like” characteristics? Does the financial instrument behave more like debt? Sometimes evaluating the

equity-like traits and the debt-like traits of a financial instrument requires thinking about the same traits from

different perspectives—most often from at least four (though sometimes more) perspectives. From a legal, or

form, perspective, is the instrument structured as an equity security or as a debt security? From a tax perspective, is it debt? From a ratings agency perspective, does the instrument receive “equity credit” in recognition of its equity-like features? And, finally, from an accounting perspective, how will the financial instrument be treated on the issuer’s balance sheet? Financial innovation resulted in the development of more complex products, including instruments like convertible securities and hybrid securities, that have characteristics of debt and equity. These new products required closer analysis and often were difficult to classify for accounting purposes. Nonetheless, there is still an intuitive aspect to answering all of these questions—stock was equity and debt was debt.

See full news bulletin for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:


Morrison & Foerster LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.