8.2 Scope
The guidance on the issuer’s accounting for own-share lending arrangements in ASC 470-20 applies to arrangements that have the following terms and characteristics:
- The issuer is lending its equity shares to the counterparty (i.e., it has issued its equity shares on loan).
- The issuer receives a nominal fee that is significantly less than the fair value of the shares and of the arrangement.
- The counterparty will return the loaned shares to the issuer on the arrangement’s maturity date for no additional consideration. If the counterparty is unable to return the loaned shares, it may be required to reimburse the issuer in cash.
- The arrangement qualifies as equity under GAAP.
- The arrangement was executed in contemplation of a convertible debt issuance or other financing.
In evaluating whether the contract qualifies as equity under GAAP, the issuer should consider the requirements in ASC 480-10 and ASC 815-40.
Connecting the Dots
For a discussion of the evaluation of whether an own-share lending arrangement
qualifies as equity under ASC 815-40, see Deloitte’s Roadmap Contracts on an Entity’s Own
Equity, in particular Sections 2.9, 4.3.5.11, and
5.2.3.6.