FASB Issues Guidance on Down Round Features of Financial Instruments

Article Excerpt:

The Financial Accounting Standards Board (the FASB or the Board) issued Accounting Standards Update (ASU) 2017-11 with the intent to simplify the accounting for certain equity-linked financial instruments (or embedded conversion options) that use down round features. 

A down round provides a downward adjustment of the current exercise price based on the price of future equity offerings.  Down rounds are commonly used in warrants, convertible preferred shares, and convertible debt instruments issued by private companies and development-stage public companies.