Contracts on an Entity's Own Equity

• Read the Roadmap.
• Open a PDF version of the Roadmap.
• A DART subscription is required for downloading, copying, or printing the Roadmap. Clients who are not DART subscribers may request a PDF version of the Roadmap from their engagement teams.

This Roadmap provides a comprehensive overview of the guidance in ASC 815-40 as well as insights into and interpretations of how to apply it in practice. ASC 815-40 addresses a reporting entity’s accounting for contracts that are potentially indexed to, and potentially settled in, an entity’s own equity (also known as equity-linked financial instruments).

All entities are capitalized with debt or equity. The nature and mix of debt and equity securities that comprise an entity’s capital structure, and an entity’s decision about the type of security to issue when raising capital, may depend on the stage of the entity’s life cycle, the cost of capital, the need to comply with regulatory capital requirements or debt covenants (e.g., capital or leverage ratios), and the financial reporting implications. For example, early-stage and smaller-growth companies are often financed with preferred stock and warrants with complex and unusual features, whereas larger, more mature entities often have a mix of debt and equity securities with more plain-vanilla common stock capitalization.

When analyzing the guidance in equity-linked financial instruments, entities typically must also consider the guidance in ASC 260, ASC 470, ASC 480, and ASC 815. (The scope of ASC 480 is limited to freestanding financial instruments and does not include embedded features.)

Be sure to check out other titles in Deloitte’s Roadmap series, our comprehensive, easy-to-understand collection of accounting guides on selected topics of broad interest to the financial reporting community.