Last updated on January 25, 2022. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Sections updated on the date above are indicated with an asterisk *)
Project Objective:The objective of this project is to improve and align the two existing indexation models in Topic 480, Distinguishing Liabilities from Equity, and Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, used to evaluate financial instruments with characteristics of equity by developing an indexation principle to reduce inconsistencies across GAAP.
Background:Under its project that resulted in the issuance of Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, the Board explored improvements to the derivatives scope exception for contracts in an entity’s own equity in Subtopic 815-40 as part of the proposed Accounting Standards Update, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which was issued on July 31, 2019. The amendments in that proposed Update included a remote likelihood threshold that would have allowed an entity to disregard certain contingent events when applying the derivatives scope exception. However, because of mixed views received from comment letter respondents and during outreach, the Board was unable to determine the operability and auditability of the those proposed amendments.
Exposure Draft:There are no exposure documents at this time.
Decisions Reached at Last Meeting (as of February 3, 2021):
The Board continued initial deliberations by discussing the project direction to help focus the staff’s research and outreach efforts.
The Board decided that the project scope should include the following instruments and features:
- Freestanding financial instruments that have all the characteristics of a derivative instrument
- Freestanding instruments that potentially are settled in an entity’s own stock, regardless of whether the instrument has all the characteristics of a derivative instrument
- Embedded features that have the characteristics of a derivative instrument.
The Board also decided that the project scope should include both Step 1 (contingent exercise provisions) and Step 2 (settlement provisions) of the indexation guidance in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity.
Additionally, the Board directed the staff to develop alternatives for indexation guidance that focus on:
- Both a qualitative principle and a quantitative threshold, rather than alternatives that are solely qualitative or quantitative in nature
- Instruments or features that are not indexed to an entity’s own equity, rather than instruments or features that are indexed to an entity’s own equity.
Tentative Board Decisions Reached to Date (as of February 3, 2021):
A summary of the Board’s tentative decisions reached to date can be found here.
The following are links to the minutes for each meeting. To view Board meetings and handouts from the past 90 days, click here.
|February 3, 2021||Board Meeting—The Board continued initial deliberations by discussing the project direction to help focus the staff’s research and outreach efforts.|
|August 26, 2020||Board Meeting—The Board began initial deliberations and determined project direction.|
|February 5, 2020||Board Meeting—The Board added to its agenda a separate project to improve aspects of the derivatives scope exception guidance.|
Supervising Project Manager
Postgraduate Technical Assistant
Postgraduate Technical Assistant
The staff has prepared this summary for information purposes only. Any Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.