September 3, 2020

The Emerging Issues Task Force (EITF) met on September 3, 2020, and deliberated the following topic:

• Issue No. 19-C, “Warrant Modifications: Issuers’ Accounting for Modifications of Equity Classified Freestanding Call Options That Are Not within the Scope of Topic 718, Compensation—Stock Compensation, or Topic 815, Derivatives and Hedging”—The Task Force reached a consensus to expand the scope of this Issue to include modifications of all freestanding equity-classified derivative instruments that remain equity classified after modification. The Task Force reached a consensus that:

1. An entity should treat a modification of the terms or conditions of an equity-classified derivative instrument as an exchange of the original instrument for a new instrument.
2. An entity should measure the effect of a modification of an equity-classified derivative instrument as the excess, if any, of the fair value of the modified instrument over the fair value of the original instrument immediately before its terms are modified.
3. An entity should recognize the effect of a modification of an equity-classified derivative instrument based on the substance of the transaction as follows:
   1. Scenario A: Financing Transaction To Raise Equity. Equity issuance cost in accordance with the guidance in paragraph 340-10-S99-1.
   2. Scenario B: Financing Transaction To Raise or Modify Debt. Expense in accordance with the guidance in Topic 470, Debt, and Topic 835, Interest.
   3. Scenario C: Transaction To Compensate for Goods or Services. Compensation cost in accordance with the guidance in Topic 718.
   4. Scenario D: Other Modifications That Are Not Executed To Raise Financing or as Compensation for Goods or Services. Deemed dividend.

The Board will consider for ratification the consensus-for-exposure on Issue 19-C on September 16, 2020. The next EITF meeting is tentatively scheduled for November 5, 2020.  For more information on the EITF, including updates on the next EITF meeting date, visit the  FASB website.