Defining Issues | March 2021

 

Insight

Warrant modifications and licensing revenue

EITF reaches consensus on accounting for equity-classified warrants; refers licensing revenue issues back to the FASB.

Kimber Bascom

Kimber Bascom

Partner, Dept. of Professional Practice, KPMG US

+1 212-909-5664

P.K. Barot

P.K. Barot

Managing Director, Dept. of Professional Practice, KPMG US

+1 212-954-6434

The EITF consensus, subject to the FASB’s ratification, would amend the proposed ASU to limit the scope to an issuer’s accounting for modifications of warrants that remain equity-classified after modification. Other freestanding equity-classified financial instruments would not be in the scope of the guidance.

Applicability

Proposed ASU

  • All companies that modify or exchange equity-classified written call options that remain equity-classified after the modification or exchange
  • Licensors that modify licenses of intellectual property

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
* All dates are subject to FASB ratification.

 

Key impacts

The final consensus proposes:

  • Limiting the scope to freestanding equity-classified written call options
  • A recognition model that includes four categories of transactions, and corresponding accounting treatment for each category
  • A single measurement model
  • Requiring 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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