The FASB has issued an Exposure Draft for public comment that is intended to clarify and reduce diversity in practice in the accounting for modifications and exchanges of freestanding, equity-classified forward and option contracts that remain equity classified after the modification or exchange.  The amendment would not apply to contracts that are within the scope of either Topic 718: Compensation - Stock Compensation or Topic 815: Derivatives and Hedging.  Under the Exposure Draft, specified modifications and exchanges are treated as exchanges of the original instrument for a new instrument.  The effect of the exchange is measured as the excess of the fair value of the modified or exchanged instrument over fair value of the original instrument immediately prior to the modification or exchange.  The effect is treated in accordance with the economic substance, in the same manner as if cash had been paid as consideration for the modification or exchange.  The effect is included in earnings per share in accordance with the economic substance, in the same manner as if cash had been paid as consideration for the modification or exchange. 

The effective date of the Exposure Draft would be determined after feedback has been considered.  Entities would have the option to apply the amendments either retrospectively to all prior periods through a cumulative catch-up adjustment or prospectively to modifications or exchanges occurring after the effective date.  

The full text of the Exposure Draft is available here.

^{Readers should not act upon information presented without individual professional consultation.}