KPMG reports on ASU 2017-11, under which down round features will not cause certain instruments to be accounted for as derivatives. This means that fewer free-standing equity-linked instruments with down round features will be accounted for as liabilities and fewer features with down round features will be bifurcated from the host contract than under current accounting.
Mandatory effective dates and early adoption provisions:
Effective date:
Annual periods – Fiscal years beginning after
Interim periods – In fiscal years beginning after
Public business entities
December 15, 2018
December 15, 2018
All other entities
December 15, 2019
December 15, 2020
Early adoption allowed? Yes, including interim periods.
Key impacts
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.
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