FASB to Review Debt and Equity Guidance

The Financial Accounting Standards Board (FASB or “the Board”) unanimously voted on March 18, 2026, to add to its technical agenda a review of the guidance for distinguishing liabilities from equity. This decision follows feedback received from the Board’s 2025 Invitation to Comment–Agenda Consultation and responds to longstanding criticism that the current rules lead to inconsistencies in financial reporting. 

The Board’s stated goals are to simplify the guidance for preparers and increase consistency in application across entities. The review will focus on the “Scope and Scope Exceptions” section of Accounting Standards Codification (ASC) 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity.  

As part of the debt versus equity project, FASB is reevaluating how companies determine if a financial instrument must be accounted for as a derivative. Instruments classified as derivatives are measured at fair value with changes recognized in earnings, leading to income statement volatility. Specifically, the Board is focusing on how companies determine if a contract meets the derivative scope exception. Determining if an issued financial instrument’s settlement amount depends on the issuer’s own share price (e.g., warrants or convertible features) is a key aspect in qualifying the instrument for the derivative scope exception. This determination also directly impacts if the instrument is classified as a liability or equity.  

To address these challenges, the Board announced it would work to develop an acceptable variables approach under which: 

“an instrument would be considered indexed to an entity’s own stock as long as the variables that affect the settlement amount are related to specified acceptable variables—the entity’s own stock price, strike price of the instrument, term of the instrument, expected dividends or other dilutive activities, stock borrow cost, interest rates, stock price volatility, the entity’s credit spread, the ability to maintain a standard hedge position in the underlying shares, and the entity’s own operations or activities.” 

It appears the FASB, with its updates, is targeting the most problematic aspects of the guidance rather than taking on a comprehensive overhaul.  

The project also aligns with the current regulatory environment in which agencies are pursuing simplification and improved transparency in financial reporting.  

How BRG Can Help  

BRG is ready to assist in evaluating the impacts of these forthcoming guidance changes on your financial reporting. Our team can review your existing accounting methodologies, propose revisions, and help revise relevant accounting policies. We can also assess how the guidance change flows into your financial statements and ensure it is appropriately accounted for in investor presentations.  

For more information, please contact Paul Noring (PNoring@thinkbrg.com) or Lindsay Potter (LPotter@thinkbrg.com).