|
|
EBA
The EBA strongly supports the IASB’s efforts to develop clear definitions for the distinction between equity and liability, promoting a consistent application and addressing the main issues identified under the current IAS 32: Financial Instruments: Presentation. An appropriate classification of financial instruments is not only highly significant for the presentation of financial statements but also, as a matter of fact, relevant when applying the rules set out in the regulatory capital framework. Under the Capital Requirements Regulation (CRR), the qualification of instruments as Common Equity Tier 1 (CET1) under Article 28 or as State Aid under Article 31 requires, among other eligibility criteria, a classification as equity under the applicable accounting framework. Indeed, although prudential regulators have their own requirements for defining regulatory capital, the importance of the link between these requirements and the accounting standards should not be underestimated. It is therefore of the utmost importance for regulators to fully understand and be comfortable with the accounting principles behind the classification of financial instruments as liability or equity.
Based on the above considerations, the EBA comment letter is mainly focused on aspects of the proposals that may have a direct impact in prudential terms, including those for which additional clarifications regarding the IASB’s preferred approach presented in the discussion paper are deemed necessary.
ISDA
ISDA’s members accept that IAS 32 Financial Instruments: Disclosure and Presentation includes a number of accounting requirements that can be improved. However, ISDA does not believe the standard is ‘broken’ and in need of a totally new model with untested principles that may have unintended consequences. Therefore, ISDA’s members believe there are parts of the analysis carried out in the discussion paper that could be used to improve IAS 32 and resolve some of the long-standing issues, rather than require entirely new and untested accounting rules.
ISDA’smembers do not support the increased use of other comprehensive income (OCI). ISDA believes that the increased use of OCI for liabilities, which do not meet the amount feature, is contrary to the conceptual framework and should not be necessary if the principles of the DP were sufficiently robust. ISDA’smembers believe that if the IASB wishes to tackle ‘counter-intuitive’ accounting there are other ways that this can be done either through separate presentation within profit or loss or through disclosure.