FASB proposals would require an entity that modifies freestanding equity-classified forwards and options (including warrants) to apply a principles-based framework to determine the accounting treatment that best reflects the economic substance of the transaction. The amendments would apply to equity-classified forwards and options that are not in the scope of ASC 718 or accounted for as derivatives under ASC 815 that remain equity-classified after modification or exchange.
The exposure draft proposes:
The exposure draft reflects the previous decisions of the consensus-for-exposure reached by the EITF in September 2020. In October 2020 the FASB further clarified that the amendments would apply to equity-classified forwards and options that are not in the scope of ASC 718 (stock compensation) or accounted for as derivatives under ASC 815 (derivatives and hedging).
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