In Praise of Occam's Razor: A Critique of the Decomposition Approach in IAS 32 to Accounting for Convertible Debt

Ronald Ma and Cecilia Lambert

Accounting and Business Research, 1997, vol. 28, issue 2, 145-153

Abstract: IAS 32 Financial Instruments: Disclosure and Presentation (1995) raises a number of questions. In particular, it is argued that the Standard's requirements on accounting for, and the classification of, compound financial instruments by the issuer, are based on reasoning that is conceptually flawed. This paper proposes that a compound financial instrument be viewed as a single instrument with a dual nature, comprising the nature both of liability and equity. Under this concept, the instrument cannot be decomposed into severable component parts. Rather, it should be treated as wholly liability or wholly equity, depending on whether the liability or equity nature is dominant at a particular time.

Date: 1997
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DOI: 10.1080/00014788.1998.9728905

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