KPMG reports on the FASB’s proposed ASU impacting down-round financial instruments. The proposals on equity-linked instruments with down-round features aim to make the accounting guidance easier to use.
A down-round feature is a provision in an equity-linked instrument that reduces the strike price of a financial instrument if the entity:
A down-round feature exists to protect certain investors from a decline in an entity’s share price. Although a down-round feature is not normally a significant driver of the fair value of the instrument, the fair value of that instrument is somewhat greater than a similar equity-linked instrument without a down-round feature.