Re: Draft Interpretation DI/2012/2 Put Options Written on Non-controlling Interests

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Derivatives and Hedging Topic The comment due date is March 30, Among those risks is the risk of changes in fair values or cash flows of existing or forecasted issuances or purchases of fixed-rate financial assets or liabilities attributable to the designated benchmark interest rate referred to as interest rate risk. In the United States, eligible benchmark interest rates under Topic are interest rates on direct Treasury obligations of the U. Consequently, when a call put option is contingently exercisable, an entity does not have to draft interpretation put options written on non-controlling interests whether the event that triggers the ability to exercise a call put option is related to interest rates or credit risks.

All other entities must apply the new requirements for fiscal years beginning after December 15, and interim periods within fiscal years beginning after December 15, All entities have the option of adopting the new requirements early, including adoption in an interim period.

If an entity early adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of draft interpretation put options written on non-controlling interests fiscal year that includes that interim period.

For all other entities, the amendments are effective for financial statements issued draft interpretation put options written on non-controlling interests fiscal years beginning after December 15,and interim periods within fiscal years beginning after December 15, Early adoption is permitted, including adoption in an interim period.

Targeted Improvements to Accounting for Hedging Activities. The new standard is intended to improve and simplify accounting rules around hedge accounting. The ASU is effective for public companies in and private companies in Early adoption is permitted.

The new standard refines and expands hedge accounting for both financial e. Its provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes, for investors and analysts. The new standard takes effect for fiscal years, and interim periods within those fiscal years, beginning after December 15,for public companies and for fiscal years beginning after December 15, and interim periods for fiscal years beginning after December 15,for private companies.

Early adoption is permitted in any interim period or fiscal years before the effective date of the standard. ASU simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument or embedded feature that provides a downward adjustment of the current exercise price based on the price of future equity offerings.

Down round features are common in warrants, convertible preferred shares, and convertible debt instruments issued by private companies and development-stage public companies. Private draft interpretation put options written on non-controlling interests and other stakeholders expressed concern that current accounting guidance creates unnecessary cost and complexity for organizations that issue financial instruments with down round features by requiring, on an ongoing basis, fair value measurement of the entire instrument or conversion option.

It creates, they assert, unnecessary income statement volatility associated with changes in value of a company's own share price, and does not reflect the economics of the down round feature, which exists to protect certain investors from declines in the issuer's share price under certain circumstances. The new ASU addresses these concerns by requiring companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.

Companies that provide earnings per share EPS data will adjust their basic EPS calculation for the effect of the feature when triggered i. To address this concern, the FASB decided to reclassify the indefinite deferral as a scope exception, which does not have an accounting effect. The provisions of the new ASU related to down rounds are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, For all other entities, the amendments are effective for fiscal years beginning after December 15,and interim periods within fiscal years beginning after December 15, Early adoption is permitted for all entities.

GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify how current U. GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the draft interpretation put options written on non-controlling interests contract.

Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract.

Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. The amendments in this ASU also clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features i.

Early adoption, including adoption in an interim period, is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The effects of initially adopting these amendments should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a draft interpretation put options written on non-controlling interests as of the beginning of the fiscal year for draft interpretation put options written on non-controlling interests the amendments are effective.

Retrospective application is permitted to all relevant prior periods. Stakeholders are encouraged to review and provide comment on the proposed ASU by Tuesday, November 22, The proposed ASU sets forth the FASB's recommendations for improving the portrayal of the economic results of an entity's risk management activities, and for simplifying the application of hedge accounting guidance without compromising the quality of financial reporting information provided to investors.

This Exposure Draft contains proposals for improving how the economic results of an institution's risk management activities are portrayed by:. Additionally, the Exposure Draft contains proposals to simplify the application of hedge accounting by:.

To draft interpretation put options written on non-controlling interests additional feedback on its proposals, the FASB tentatively has scheduled two public roundtable meetings at its Norwalk, Connecticut offices on December 2, Those interested in participating in one of the roundtables are asked to submit written comments on the proposed ASU by November 4, The FASB will determine an effective date for the ASU after redeliberating all comments received during the comment period and from the public round table meetings.

Early application of the proposed amendments would be permitted at the beginning of any fiscal year before the effective date. The amendments apply to all entities that are issuers of or investors in debt instruments or hybrid financial instruments that are determined to have a debt host with embedded call put options.

TopicDerivatives and Hedging, requires that embedded derivatives be separated from draft interpretation put options written on non-controlling interests host contract and accounted for separately as derivatives if certain criteria are met.

One of those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract the "clearly and closely related" criterion. GAAP provides specific guidance for assessing whether call put options that can accelerate the repayment of principal on a debt instrument meet the clearly and closely related criterion. The guidance states that for contingent call put options to be considered clearly and closely related, they can be indexed only to interest rates or credit risk.

The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call put options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative.

Public business entities must apply the new requirements for fiscal years beginning after December 15, and interim periods within those fiscal years.

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