Defining Issues | May 2021

 

Insight

Warrant modifications and licensing revenue

FASB issues ASU clarifying accounting for equity-classified warrants; EITF refers licensing revenue issues back to FASB.

Kimber Bascom

Kimber Bascom

Partner, Dept. of Professional Practice, KPMG US

+1 212-909-5664

ASU 2021-04 provides guidance on an issuer’s accounting for modifications of written call options that remain equity-classified after modification.

Applicability

  • All companies that modify or exchange equity-classified written call options that remain equity-classified after the modification or exchange

Relevant dates

Effective date All entities

Annual periods – Fiscal years beginning after       

December 15, 2021

Interim periods – In fiscal years beginning after 

December 15, 2021

Early adoption permitted?

Yes, including adoption in an interim period.

 

Key impacts

  • Limits the scope to freestanding equity-classified written call options
  • Provides a recognition model that includes four categories of transactions, and corresponding accounting treatment for each category
  • Requires entities to apply the guidance prospectively when it becomes effective

Report contents

  • Applicability
  • Key facts and impacts
  • Scope
  • Recognition
  • Measurement
  • Disclosures
  • Effective date and transition
  • Licensing revenue 

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