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FASB proposed ASU: indexation guidance for contracts in entity's own equity (ASC 815-40)
FASB wants to scrap the fixed-for-fixed test in ASC 815-40 and replace it with an acceptable variables approach, which it expects to push more instruments into
On November 2, 2026, FASB posted a proposed ASU that would simplify how entities determine whether equity-linked contracts - warrants, convertible notes, and similar instruments - are indexed to an entity's own stock under Subtopic 815-40. CPA Practice Advisor reports that the proposal would replace the fixed-for-fixed assessment with an acceptable variables approach, which FASB expects to result in more contracts being classified as equity.
BY THE NUMBERS
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Not stated EFFECTIVE |
1 SOURCE TRACKED |
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Nov 3 LAST UPDATED |
FASB ISSUER |
The proposal comes directly out of FASB's 2025 agenda consultation. CPA Practice Advisor reports that stakeholders told the board the current guidance is complicated, expensive to apply, and a frequent source of financial statement restatements, and that there are differences in practice on how certain contract features are assessed. Investors also told FASB they sometimes set aside fair value changes in liability-classified instruments because they do not find those changes useful.
For the close team, the practical stakes are on the balance sheet and in earnings: liability classification under the current model triggers mark-to-market remeasurement each period, running fair value swings through income. A shift to equity classification would eliminate that remeasurement and affect diluted EPS calculations. Entities with SPAC-era warrants or convertible debt with variable-settlement features have the most exposure to watch.
An effective date has not been stated; the board will set one after considering comment letters. Current ASC 815-40 guidance remains in effect until a final ASU is issued.
WHAT TO DO IN THE CLOSE
| Identify all warrants, convertibles, and equity-linked instruments currently classified as liabilities under ASC 815-40. | |
| Map each instrument to the fixed-for-fixed assessment to understand what would change under the acceptable variables approach. | |
| Flag instruments where a shift from liability to equity would eliminate period-end fair value remeasurement entries. | |
| Assign someone to submit or review a comment letter before the comment period closes. | |
| Update the technical accounting log to monitor for a final ASU and effective date announcement. |
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QUESTIONS THIS ANSWERS
What is the fixed-for-fixed assessment under ASC 815-40?
Under current guidance, a contract must be settled by exchanging a fixed amount of cash for a fixed number of shares to be indexed to an entity's own stock and potentially equity-classified. The proposed ASU would replace this with an acceptable variables approach that FASB expects to qualify more instruments as equity.
Which instruments are most affected by the ASC 815-40 indexation proposal?
Warrants, convertible notes, and other equity-linked instruments that are currently liability-classified because they fail the fixed-for-fixed test. CPA Practice Advisor reports FASB expects more such instruments to be classified as equity under the new model.
Does the proposed ASU change current accounting now?
No. It is a proposed ASU open for public comment. Current ASC 815-40 guidance remains in effect until FASB issues a final standard and sets an effective date.
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Previously: AICPA proposed 2027 SOC 2 trust services criteria: first restructure since 2017
A living page: it is re-read and updated as coverage arrives; last updated Tuesday November 3. Facts come from the linked sources; confirm against the issuer's own text before relying on it.
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