Two-part FASB proposal addresses accounting for certain financial instruments

By Ken Tysiac

FASB issued a two-part proposal Wednesday that is designed to address the complexity related to applying GAAP to certain financial instruments associated with liability and equity.

In Part I of the proposal, FASB addresses the complexity of accounting for certain financial instruments with down round features, which result in the strike price being reduced on the basis of pricing of future equity offerings.

Part II of the proposal would recharacterize the indefinite deferral of certain provisions of FASB Accounting Standards Codification (ASC) Subtopic 480-10, Distinguishing Liabilities From Equity—Overall. The provisions, which are currently presented as pending content in the ASC, would be recharacterized as a scope exception. The Part II proposal would not have an accounting effect.

Comments can be submitted by Feb. 6 at FASB’s website.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

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