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Freestanding Equity-Classified Forwards and Options

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On Dec. 28, Grant Thornton submitted a comment letter in response to the FASB’s proposed ASU, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Forwards and Options – a consensus of the Emerging Issues Task Force. The proposal addresses diversity in accounting for modifications or exchanges of freestanding equity-classified forwards and options by developing a framework that relies on the economic substance of the modification or exchange.

While we generally agree with the proposed amendments, we do raise a number of issues for the Board to consider, including the following:

  1. We ask the FASB to clarify how the proposed guidance should be applied to purchased instruments (for example, a purchased call option).
  2. The proposed guidance ignores decreases in fair value (that is, an inflow of economics from lenders), which we believe is inconsistent with the existing guidance on modifying debt in ASC 470-50. We believe that the FASB should clarify this inconsistency.

Download the comment letter to read our remarks in full.