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FASB issues guidance on hybrid financial instruments

  • FASB (US Financial Accounting Standards Board) Image

Nov 04, 2014

The FASB has issued Accounting Standards Update (ASU) No. 2014-16, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity,” in response to the EITF’s final consensus on Issue 13-G. The ASU requires an entity to “determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of the relevant facts and circumstances” (commonly referred to as the whole-instrument approach).

In addition, when assessing the substance of the relevant terms and features, an entity should consider:

  • “The characteristics of the terms and features themselves.”
  • “The circumstances under which the hybrid financial instrument was issued or acquired.”
  • “The potential outcomes of the hybrid financial instrument.”

The ASU applies to all entities and is effective for annual periods beginning after December 15, 2015, and interim periods thereafter. Early adoption is permitted.

For more information, see the ASU on the FASB’s Web site.

Correction list for hyphenation

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