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FEE agrees that financial reporting is an additional key objective but FEE regrets the DP does not explain in more detail the role of the classification of claims in depicting financial performance. As FEE noted in its response to the IASB DP A Review of the Conceptual Framework for Financial Reporting, FEE believes that it would be important to define positively the concept of performance as something other than simply the changes in assets and liabilities. Further, FEE believes it is important to rank the relative importance of the depicting objectives. This would assist in the assessment of the various approaches considered for the classification of claims, since none of the alternatives explored in the DP meets all the objectives identified.
FEE continues to support a binary classification of claims based on a positive definition of liabilities and a negative definition of equity. FEE believes that the other alternative, i.e. positively defining equity, could provide meaningful information, however a positive definition of equity would necessarily involve legal criteria. This is not a desirable outcome in the context of international standards, like the IFRSs, as this would limit the application of the standards to jurisdictions that use similar definitions.
However, FEE does not support pursuing the classification of claims in more than two classification categories, as proposed in the paper. Using more than two categories would require more than one positively defined element. In FEE’s view, apart from liabilities, there is not an easily identifiable positive definition for equity or another element that would be consistent with the global character of IFRSs. FEE believes that achieving a robust definition of liabilities, considering the specific issues arising from hybrid instruments and derivatives over own shares, would be a more sound approach from a conceptual point of view. FEE also disagrees with the approach of a single element and classification according to a predetermined picking order. In FEE’s opinion, the binary split between equity and liabilities provides more useful information to the users of financial statements.