FASB Proposes Clarifications to Accounting for Certain Modifications of Forwards and Options

FASB has issued a narrow proposal aimed at clarifying and reducing diversity in accounting for certain modifications or exchanges of freestanding equity-classified forwards and options, including warrants. The proposal “would provide guidance on how an issuer would measure and recognize the effect of these transactions,” the FASB said. In particular, the proposal responds to concerns that there has been a diversity in practice when companies account for economically similar modifications or exchanges of freestanding equity-classified forwards and options because there is no explicit guidance in the Accounting Standards Codification (ASC) today, according to ASU 2020-800. “Stakeholders have requested that the Board provide guidance that would clarify whether an issuer would account for a modification or an exchange of a freestanding equity-classified forward or option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition,” the exposure draft states. Comments are due by December 28.

Text Amended to Conform to SEC’s Revised Disclosure Rules on Guaranteed Debt Offerings

FASB issued a minor update to the ASC to reflect changes the SEC made earlier in the year to its disclosure rules on guaranteed debt securities offerings. In early March this year, the SEC issued Release 33-10762, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities,” to simplify the disclosure rules for guaranteed debt offerings and encourage more companies to conduct registered debt offerings. The rules become effective on January 4, 2021, but the SEC said companies can voluntarily take advantage of the scaled back requirements before then. The board issued the amendments on October 22, 2020, in Accounting Standards Update (ASU) 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762. ASU 2020-09 amends and supersedes various SEC paragraphs mainly in FASB’s Topic 470, Debt. It also amends a few paragraphs in Topic 270, Interim Reporting; Topic 460, Guarantees; Topic 505, Equity.


Jurata Defends Revised Agendas

After the PCAOB published revised standards-setting and research agendas last month, board member Jay Brown criticized them, saying that the agendas largely ignore investor expectations. Now, another board member, Rebekah Goshorn Jurata, is defending the board’s decision. In early September, the PCAOB dropped the auditor’s role on “other information” and non-compliance with laws and regulation (NOCLAR) from its research agenda and going concern from the standards-setting agenda. The board said going forward, it will include only the projects that it believes will have a public milestone in the next 12 to 18 months. And Jurata said she strongly supports the new approach. “Typically what a regulator will do, if they have an agenda, they have an outstanding item, a lot of things tend to languish,” Jurata said in a recorded session of this year’s Forum for Auditors of Small Businesses and Broker-Dealers, which was posted on October 19. “And rather than reflect on what are top priorities as far as from an agenda in a calendar setting … we took a different approach where we wanted to signal to the public what we actually aim to accomplish in the next 12 to 18 months. And so, some people may have identified the fact that there are certain items that came off the list.”