Finance has still been required for acquisitions which have continued apace and, as the doors to off balance sheet finance seem to be slowly closing, there has been a need for something more sophisticated. This has help to promote the development of a number of instruments that can be described as hybrids, i.e. partly equity and partly debt.
             This period has coincided with developments in accounting to reinforce the concepts of substance over form. The problem with complex instruments is that in a two-dimension balance sheet which includes only debt and equity, it is very difficult to see what the substance is. Apart from this, resort to sophisticated capital instruments as a way to present their overall financial position in a more favourable light; and designed the instruments in such a way to allow companies to secure access of funds which could be classified as equity rather than debt.
             At that time, authoritative pronouncements have been limited to a technical release by the ICAEW in 1987 (TR 677). That was effectively a consultative document which was a useful start to a debate, but like any such first short, was the subject of various responses, some supportive and some critical. Unfortunately, after the responses, the debate was not officially taken further, leaving the TR 677 as a relatively useless document.
             In December 1992, ASB published FRED 3 which was based on the main proposals set out in the earlier discussion paper. There was a subsequent consultation on one additional matter: the appropriate treatment when debt is renegotiated. Companies in financial difficulties sometimes reach an agreement with lenders which allows them to reduce or defer their future payments of principal or interest under the debt. In these circumstances, the ASB proposed that the renegotiated debt should be stated at its fair values with a corresponding gain being recognised in the profit and loss account. However, commentators criticised t...