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ASC 815-40-35-8 provides guidance on the reassessment of instruments within the scope of ASC 815-40.

ASC 815-40-35-8

The classification of a contract shall be reassessed at each balance sheet date. If the classification required under this Subtopic changes as a result of events during the period (if, for example, as a result of voluntary issuances of stock the number of authorized but unissued shares is insufficient to satisfy the maximum number of shares that could be required to net share settle the contract [see discussion in paragraph 815-40-25-20]), the contract shall be reclassified as of the date of the event that caused the reclassification. There is no limit on the number of times a contract may be reclassified.

Although ASC 480 addresses the reclassification of mandatorily redeemable shares, it does not require other liability contracts within its scope to be reassessed. Notwithstanding, we believe these liability contracts should be reassessed and reclassified if circumstances change. For example, if a redemption provision is eliminated from shares underlying a warrant (e.g., upon an IPO), the reporting entity should assess whether the warrant should be reclassified as equity. See FG 8.2.2.2 for information on warrants on redeemable shares.
ASC 815-40-35-9 and ASC 815-40-35-10 provide guidance on the reclassification of instruments within the scope of ASC 815-40. We believe this guidance should also be applied to contracts within the scope of ASC 480 that are reclassified due to a change in circumstances.

ASC 815-40-35-9

If a contract is reclassified from permanent or temporary equity to an asset or a liability, the change in fair value of the contract during the period the contract was classified as equity shall be accounted for as an adjustment to stockholders’ equity. The contract subsequently shall be marked to fair value through earnings.

ASC 815-40-35-10

If a contract is reclassified from an asset or a liability to equity, gains or losses recorded to account for the contract at fair value during the period that the contract was classified as an asset or a liability shall not be reversed.

Reclassification of an instrument may occur when a new equity-linked instrument is issued, and the reporting entity concludes that it does not have sufficient authorized and unissued shares to settle all of its contracts. The determination of which instruments should be classified as equity will depend on the terms and policy for sequencing of instruments as discussed in FG 5.6.3.1A.
If an equity-linked instrument classified as a liability is required to be reclassified to equity, the reporting entity should record the change in fair value of the liability through the date of reclassification in the income statement.
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