I favor view 2 because I agree that issuers should account for such instruments by separating liability and equity components and reporting them separately. Some items in an account may vary and thus should e treated differently so that investors understand what they are investing in. Covering up and making something one or the other (either just liability or just equity) may seem confusing or prevent investors from achieving their goals. I would not ignore what GAAP says about this issue. Instead, I would try to follow GAAP rules and put them into reporting the different components separately. I also would say that convertible debt is both a liability and equity.

In my question you answered but What you mean here in this Sentence?"...Some items in an account may vary..." Aside from the obvious, what might vary?