In 2017, the FASB issued new guidance that changes the accounting for warrants or convertible instruments that include a down round feature. Under the new guidance, equity classification will no longer be precluded and fair value accounting is not required solely due to the existence of a down round feature. Although the guidance is not required to be adopted until January 1, 2019 (for public business entities), many companies are considering early adoption.
Companies planning for adoption should evaluate adjustment provisions carefully to be sure that they meet the definition of a down round and should not underestimate the amount of effort that could be required to implement the new guidance.
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