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FASB Issues Update on Certain Financial Instruments with Liabilities and Equity Characteristics

Following recommendations from the Private Company Council, the Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I simplifies accounting for select financial instruments with down round features, a rule in an equity-linked financial instrument or embedded feature that offers a downward adjustment. Read More.

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Short-Term Fixes to Liabilities and Equity Accounting in the Works

As accountants continue to struggle with differentiating liabilities and equity, Financial Accounting Standards Board (“FASB”) members have agreed to take action. Last week, Chairman Russell Golden ordered the FASB’s research team to develop short-term solutions that the board could quickly implement, and also continuously monitor significant problems that may require long-term answers. Golden said this approach would take longer, but making targeted changes to Topic 480, Distinguishing Liabilities From Equity, will be helpful. Possible changes may include new disclosures regarding financial instruments with characteristics of both equity and liabilities, streamlining how to split the measurement of hybrid instruments, and reorganizing. Read More.

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Decisions Reached on Distinguishing Liabilities from Equity Project

At its May 10 meeting, the Financial Accounting Standards Board (“FASB”) reached the following decisions on its proposed Accounting Standards Update, Distinguishing Liabilities from Equity (Topic 480): I. Accounting for Certain Financial Instruments with Down Round Features, and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception: Display (Earnings Per Share). Impacting companies within the scope of Topic 260, Earnings Per Share, an earnings per share (“EPS”) numerator modification will be required to income offered to common shareholders in basic EPS for equity-classified freestanding financial instruments. Additionally,. Read More.

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FASB Makes Decisions on Targeted Improvements to Liabilities and Equity

During its March 22 meeting, the Financial Accounting Standards Board (“FASB”) reviewed comment letters received on its proposed Accounting Standards Update—Distinguishing Liabilities from Equity (Topic 480): I. Accounting for Certain Financial Instruments with Down Round Features, and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. As a result of the discussions held and feedback received, the FASB asked staff members to conduct research on a possible alternative that would impact the measurement of down round features, but not the classification. Further, the FASB. Read More.

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Liabilities and Equity Targeted Improvements Proposed

The Financial Accounting Standards Board (“FASB”) has issued for comment the proposed Accounting Standards Update, Distinguishing Liabilities from Equity (Topic 480): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The proposal is split into two parts. In Part I, the FASB proposes when an entity determines certain financial instruments are to be classified as liabilities or equity instruments, they should not include the down round feature when measuring whether the financial instrument is indexed. Read More.

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FASAC Supports Liabilities and Equity Guidance Overhaul

For the past 30 years, the Financial Accounting Standards Board (“FASB”) has tried to fix the complex areas of its liabilities and equity guidance. Efforts have resulted in little success, so the FASB’s Financial Accounting Standards Advisory Council (“FASAC”) wants a major overhaul of Topic 480, Distinguishing Liabilities from Equity. At the FASAC’s December 15 meeting, the majority of members suggested the FASB take a holistic approach in improving the guidance, and address the matter as a whole rather than target certain aspects. FASAC member Mark LaMonte said the issue is complex enough that a segmented approach would not help. Read More.

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