Appendix C — Glossary of Selected Terms
Selected glossary terms in ASC 480-10-20 and the ASC master glossary are reproduced below.
ASC 480-10 Glossary and ASC Master Glossary
Contingent Consideration
Usually an obligation of the acquirer to transfer additional
assets or equity interests to the former owners of an
acquiree as part of the exchange for control of the acquiree
if specified future events occur or conditions are met.
However, contingent consideration also may give the acquirer
the right to the return of previously transferred
consideration if specified conditions are met.
Contingently Convertible Instruments
Contingently convertible instruments are
instruments that have embedded conversion features that are
contingently convertible or exercisable based on either of
the following:
-
A market price trigger
-
Multiple contingencies if one of the contingencies is a market price trigger and the instrument can be converted or share settled based on meeting the specified market condition.
A market price trigger is a market condition that is based at
least in part on the issuer's own share price. Examples of
contingently convertible instruments include contingently
convertible debt, contingently convertible preferred stock,
and the instrument described by paragraph 260-10-45-43, all
with embedded market price triggers.
Down Round
Feature
A feature in a financial instrument that
reduces the strike price of an issued financial instrument
if the issuer sells shares of its stock for an amount less
than the currently stated strike price of the issued
financial instrument or issues an equity-linked financial
instrument with a strike price below the currently stated
strike price of the issued financial instrument.
A down round feature may reduce the strike
price of a financial instrument to the current issuance
price, or the reduction may be limited by a floor or on the
basis of a formula that results in a price that is at a
discount to the original exercise price but above the new
issuance price of the shares, or may reduce the strike price
to below the current issuance price. A standard antidilution
provision is not considered a down round feature.
Employee Stock Ownership
Plan
An employee stock ownership plan is an
employee benefit plan that is described by the Employee
Retirement Income Security Act of 1974 and the Internal
Revenue Code of 1986 as a stock bonus plan, or combination
stock bonus and money purchase pension plan, designed to
invest primarily in employer stock. Also called an employee
share ownership plan.
Equity Restructuring
A nonreciprocal transaction between an entity and its
shareholders that causes the per-share fair value of the
shares underlying an option or similar award to change, such
as a stock dividend, stock split, spinoff, rights offering,
or recapitalization through a large, nonrecurring cash
dividend.
Fair Value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Financial Instrument
Cash, evidence of an ownership interest in an entity, or a contract that both:
- Imposes on one entity a contractual obligation either:
- To deliver cash or another financial instrument to a second entity
- To exchange other financial instruments on potentially unfavorable terms with the second entity.
- Conveys to that second entity a contractual right either:
- To receive cash or another financial instrument from the first entity
- To exchange other financial instruments on potentially favorable terms with the first entity.
The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument.
Contractual rights and contractual obligations encompass both those that are
conditioned on the occurrence of a specified event and those
that are not. Some contractual rights (contractual
obligations) that are financial instruments may not be
recognized in financial statements — that is, they may be
off-balance-sheet — because they fail to meet some other
criterion for recognition.
For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity.
Financial Statements Are Available to Be Issued
Financial statements are considered available to be issued
when they are complete in a form and format that complies
with GAAP and all approvals necessary for issuance have been
obtained, for example, from management, the board of
directors, and/or significant shareholders. The process
involved in creating and distributing the financial
statements will vary depending on an entity's management and
corporate governance structure as well as statutory and
regulatory requirements.
Financial Statements Are Issued
Financial statements are considered issued when they are
widely distributed to shareholders and other financial
statement users for general use and reliance in a form and
format that complies with GAAP. (U.S. Securities and
Exchange Commission [SEC] registrants also are required to
consider the guidance in paragraph 855-10-S99-2.)
Freestanding Financial
Instrument
A financial instrument that meets either of
the following conditions:
-
It is entered into separately and apart from any of the entity’s other financial instruments or equity transactions.
-
It is entered into in conjunction with some other transaction and is legally detachable and separately exercisable.
Issuer
The entity that issued a financial instrument or may be required under the terms of a financial instrument to issue its equity shares.
Issuer’s Equity Shares
The equity shares of any entity whose financial statements are included in the consolidated financial statements.
Mandatorily Redeemable Financial Instrument
Any of various financial instruments issued in the form of shares that embody an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event that is certain to occur.
Market Participants
Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:
- They are independent of each other, that is, they are not related parties, although the price in a related-party transaction may be used as an input to a fair value measurement if the reporting entity has evidence that the transaction was entered into at market terms
- They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary
- They are able to enter into a transaction for the asset or liability
- They are willing to enter into a transaction for the asset or liability, that is, they are motivated but not forced or otherwise compelled to do so.
Monetary Value
A form of settling a financial instrument under which the entity with a loss delivers to the entity with a gain shares of stock with a current fair value equal to the gain.
Net Carrying Amount of Debt
Net carrying amount of debt is the amount due at maturity,
adjusted for unamortized premium, discount, and cost of
issuance.
Net Cash Settlement
A form of settling a financial instrument under which the entity with a loss delivers to the entity with a gain cash equal to the gain.
Net Share Settlement
A form of settling a financial instrument under which the entity with a loss delivers to the entity with a gain shares of stock with a current fair value equal to the gain.
Noncontrolling Interest
The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest.
Nonpublic Entity
Any entity other than one that meets any of
the following criteria:
-
Has equity securities that trade in a public market either on a stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally
-
Makes a filing with a regulatory agency in preparation for the sale of any class of equity securities in a public market
-
Is controlled by an entity covered by the preceding criteria.
An entity that has only debt securities trading in a public
market (or that has made a filing with a regulatory agency
in preparation to trade only debt securities) is a nonpublic
entity.
Nonreciprocal Transfer
Nonreciprocal transfer is a transfer of assets or services in
one direction, either from an entity to its owners (whether
or not in exchange for their ownership interests) or to
another entity, or from owners or another entity to the
entity. An entity's reacquisition of its outstanding stock
is an example of a nonreciprocal transfer.
Obligation
A conditional or unconditional duty or responsibility to
transfer assets or to issue equity shares. This definition
is applicable only for items within the scope of Topic
480.
Orderly Transaction
A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (for example, a forced liquidation or distress sale).
Parent
An entity that has a controlling financial interest in one or more subsidiaries. (Also, an entity that is the primary beneficiary of a variable interest entity.)
Participation Rights
Contractual rights of security holders to receive dividends
or returns from the security issuer’s profits, cash flows,
or returns on investments.
Physical Settlement
A form of settling a financial instrument under which both of the following conditions are met:
- The party designated in the contract as the buyer delivers the full stated amount of cash or other financial instruments to the seller.
- The seller delivers the full stated number of shares of stock or other financial instruments or nonfinancial instruments to the buyer.
Preferred Stock
A security that has preferential rights compared to common
stock.
Principal Owners
Owners of record or known beneficial owners of more than 10
percent of the voting interests of the entity.
Reacquisition Price of Debt
The amount paid on extinguishment, including a call premium
and miscellaneous costs of reacquisition. If extinguishment
is achieved by a direct exchange of new securities, the
reacquisition price is the total present value of the new
securities.
Registration Payment Arrangement
An arrangement with both of the following characteristics:
- It specifies that the issuer will endeavor to do either of the following:
- File a registration statement for the resale of specified financial instruments and/or for the resale of equity shares that are issuable upon exercise or conversion of specified financial instruments and for that registration statement to be declared effective by the U.S. Securities and Exchange Commission (SEC) (or other applicable securities regulator if the registration statement will be filed in a foreign jurisdiction) within a specified grace period
- Maintain the effectiveness of the registration statement for a specified period of time (or in perpetuity).
- It requires the issuer to transfer consideration to the counterparty if the registration statement for the resale of the financial instrument or instruments subject to the arrangement is not declared effective or if effectiveness of the registration statement is not maintained. That consideration may be payable in a lump sum or it may be payable periodically, and the form of the consideration may vary. For example, the consideration may be in the form of cash, equity instruments, or adjustments to the terms of the financial instrument or instruments that are subject to the registration payment arrangement (such as an increased interest rate on a debt instrument).
Related Parties
Related parties include:
- Affiliates of the entity
- Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity
- Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management
- Principal owners of the entity and members of their immediate families
- Management of the entity and members of their immediate families
- Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests
- Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Rights Issue
An offer to existing shareholders to purchase additional
shares of common stock in accordance with an agreement for a
specified amount (which is generally substantially less than
the fair value of the shares) for a given period.
Securities and Exchange Commission Registrant
An entity (or an entity that is controlled by an entity) that meets any of the following criteria:
- It has issued or will issue debt or equity securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets).
- It is required to file financial statements with the Securities and Exchange Commission (SEC).
- It provides financial statements for the purpose of issuing any class of securities in a public market.
Security
The evidence of debt or ownership or a related right. It
includes options and warrants as well as debt and stock.
Share-Based Payment Arrangements
An arrangement under which either of the following conditions is met:
- One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments.
- The entity incurs liabilities to suppliers that meet either of the following conditions:
- The amounts are based, at least in part, on the price of the entity’s shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity’s shares and something other than either the price of the entity’s shares or a market, performance, or service condition.)
- The awards require or may require settlement by issuance of the entity’s shares.
The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity.
Also called share-based compensation arrangements.
Shares
Shares includes various forms of ownership that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. (Business entities have interest holders that are commonly known by specialized names, such as stockholders, partners, and proprietors, and by more general names, such as investors, but all are encompassed by the descriptive term owners. Equity of business entities is, thus, commonly known by several names, such as owners’ equity, stockholders’ equity, ownership, equity capital, partners’ capital, and proprietorship. Some entities [for example, mutual organizations] do not have stockholders, partners, or proprietors in the usual sense of those terms but do have participants whose interests are essentially ownership interests, residual interests, or both.)
Spinoff
The transfer of assets that constitute a business by an
entity (the spinnor) into a new legal spun-off entity (the
spinnee), followed by a distribution of the shares of the
spinnee to its shareholders, without the surrender by the
shareholders of any stock of the spinnor.
Standard Antidilution Provisions
Standard antidilution provisions are those that result in
adjustments to the conversion ratio in the event of an
equity restructuring transaction that are designed to
maintain the value of the conversion option.
Stock Dividend
An issuance by a corporation of its own common shares to its
common shareholders without consideration and under
conditions indicating that such action is prompted mainly by
a desire to give the recipient shareholders some ostensibly
separate evidence of a part of their respective interests in
accumulated corporate earnings without distribution of cash
or other property that the board of directors deems
necessary or desirable to retain in the business. A stock
dividend takes nothing from the property of the corporation
and adds nothing to the interests of the stockholders; that
is, the corporation's property is not diminished and the
interests of the stockholders are not increased. The
proportional interest of each shareholder remains the
same.
Stock Split
An issuance by a corporation of its own common shares to its
common shareholders without consideration and under
conditions indicating that such action is prompted mainly by
a desire to increase the number of outstanding shares for
the purpose of effecting a reduction in their unit market
price and, thereby, of obtaining wider distribution and
improved marketability of the shares. Sometimes called a
stock split-up.
Subsidiary
An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)
Transfer
The term transfer is used in a broad sense, rather than in the narrow sense in
which it is used in Subtopic 860-10.
Unit of Account
The level at which an asset or a liability is aggregated or
disaggregated in a Topic for recognition purposes.
Variable-Rate Forward Contracts
Variable-rate forward contracts are commonly used to effect equity forward transactions. The contract price on those forward contracts is not fixed at inception but varies based on changes in a specified index (for example, three-month U.S. London Interbank Offered Rate [LIBOR]) during the life of the contract.