The amendments in the Update change the classification
of certain equity-linked financial instruments (or embedded features)
with down round features. The amendments also clarify existing disclosure
requirements for equity-classified instruments.
For freestanding equity-classified financial
instruments, the amendments require entities that present earnings
per share (EPS) in accordance with Topic 260, Earnings Per Share,
to recognize the effect of the down round feature when it is triggered.
That effect is treated as a dividend and as a reduction of income
available to common shareholders in basic EPS.
Convertible instruments with embedded conversion
options that have down round features would be subject to the specialized
guidance for contingent beneficial conversion features (in Subtopic
470-20, Debt—Debt with Conversion and Other Options), including
related EPS guidance (in Topic 260).
The amendments in Part II of this Update recharacterize
the indefinite deferral of certain provisions of Topic 480, Distinguishing
Liabilities from Equity, that now are presented as pending content
in the Codification, to a scope exception. Those amendments do not
have an accounting effect.
This Update is the final version of Proposed
Accounting Standards Update 2016-370—Distinguishing Liabilities
from Equity (Topic 480), which has been deleted.
Issued: July 13, 2017