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On July 13, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-11
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815). The ASU is divided into the two following parts:
Part I amends
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815) related to the accounting for financial instruments that include down round features (i.e., features that reduce the current exercise price based on the price of future equity offerings). The changes relate to the recognition/classification and measurement of, and the calculation of earnings per share for, freestanding and embedded financial instruments.
The ASU ignores the down round feature when determining the liability or equity classification of an instrument. Therefore, a down round feature no longer precludes equity classification. The amendments also require an adjustment to an entity’s basic earnings per share calculation for the effect of the down round feature once it is triggered. Further, the ASU clarifies the existing disclosure requirements for equity-classified instruments.
The amendments in Part I are effective as follows:
Early adoption, including in an interim period, is permitted. Adjustments resulting from the early adoption of this ASU in an interim period should be reflected at the beginning of the fiscal year that includes that interim period.
The amendments should be applied retrospectively for outstanding financial instruments with a down round feature by using either a:
Part II amends Topic 480 to replace the indefinite deferral of certain provisions regarding mandatorily redeemable financial instruments of private entities and certain mandatorily redeemable non-controlling interests with a scope exception. These amendments do not have an accounting effect, and therefore do not have an effective date or any transition guidance.
To access the full script of ASU No. 2017-11, click
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of July 13, 2017. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2017. All rights reserved.
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