Recently, FASB issued ASU No. 2017-11, which changed the accounting for down round features and indefinite deferrals.
Down round features are commonly found in convertible debt instruments, convertible preferred shares, and warrants. These features are designed to decrease the current exercise price of the equity instrument based on the price of future equity offerings.
In the past, companies with equity instruments that included down round features were required to measure them at fair value on an ongoing basis. Due to the increased cost of such accounting, instead of measurement on an ongoing basis, companies are now required to adjust their basic earnings-per-share calculation for the feature only when it is triggered.
The new ASU also covered the reclassification of indefinite deferrals. This indefinite deferral was available to private companies with mandatorily redeemable financial instruments and certain non-controlling interests. Now, the indefinite deferral has been reclassified as a scope exception, no longer having an accounting effect.
For public companies, this new standard takes effect for fiscal years, and interim periods within those years, beginning after Dec.15, 2018. For private companies, it takes effect for fiscal years starting after Dec. 15, 2019, and interim periods within fiscal years starting after Dec. 15, 2020.
Stay tuned for more FASB updates or you can contact your local UHY LLP professional.