Klassifikation af finansielle instrumenter med forpligtelses- og egenkapitalkarakteristika: Med udgangspunkt i IAS 32 og Konvergensprojektet

Anette Primdahl Jakobsen & Maria Bøggild Utke

Student thesis: Master thesis


During the past 20 years the market for financial securities, consisting of both debt and equity securities, has changed significantly. Firstly, a range of new innovative securities have been developed and introduced to the marketplace, and, secondly, the market has witnessed a heavy growth. This trend challenges the traditional split of the liabilities side of the balance sheet as many of these new financial securities can be described as hybrids, containing characteristics of both liabilities and equity. It also affects the application of the accounting standard IAS 32 regarding classification of financial instru-ments. This standard has been widely criticized by experts for containing inadequacies. In practice, alterna-tive ways of handling the classification problems of these ‘mixed’ securities have therefore been used, for instance demonstrated by the financial rating bureaus. Based on these changes in the financial markets and the above-mentioned criticism of the existing regula-tion of the area, the development of new standards has been initiated. This is happening as part of the Convergence Project, which is a working relationship established by IASB and FASB. In result, a range of alternative approaches to classifying the new set of securities have been presented. Some of these are only developed as basic concepts. However, this is not a major concern as the main idea with our thesis is to provide the reader with insight in the possibilities for developing a new standard that replaces IAS 32. From a comparison of the different approaches, we first identify a number of elements, which are common to most of the suggestions put forward. We subsequently place our identified elements in a ‘stage model’ that covers the decision-making process when developing an approach for classification of financial instru-ments. The model is based on four steps containing one or two elements each. The seven elements are as follows: Rules versus principles based approach The role of the standard decision makers The basic perspective in the financial reports Prioritization of the users of the financial reports Split of the liabilities side of the balance sheet Criteria for the split Definition of equity and/or liabilities In the last part of the thesis we interpret the developed ‘stage model’, resulting in our suggestion for form-ing the basis of the classification of financial instruments. It has to be emphasized that this does not ex-clude the possibility of applying the model in alternative ways and thus generating a completely different outcome. This depends on the subjective choices made during the application.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2010
Number of pages163