Comment letter to the FASB: Liability and equity

Comments by the Financial Accounting Standards Committee of the American Accounting Association to FASB's decisions concerning the liabilities and equity project are presented. The Committee's primary concern is that it believes the Board's decision so far reflect inconsistent application of 2 important but distinct purposes or decision criteria for distinguishing liability and equity. The 2 purposes are: 1. insolvency risk assessment, and 2. common equity valuation, including the assessment of the effect of various types of financial leverage on the volatility of the return on common equity. The decision criteria corresponding to these purposes are described and specific examples illustrating what is believed to be the inconsistent application of these criteria by the Board are provided