(Reservation: the arguments and positions in this article apply to the STANDARD Y Combinator SAFE instrument. In some situations, some investors have successfully negotiated a refund or mandatory repayment in their “SAFE” contracts. These agreements are not FASs. You are “SAFEs” by name. Indeed, the contracts thus modified are convertible bonds.) This condition is clearly met. Non-registered preferred shares are normally issued upon conversion to DE SAFE investors. Registration of preferred shares with the SEC is not necessary, or even contemplated, under the standard SAFE agreement. Since ASC 815-40 is a complex area of accounting – perhaps the most complex accounting field – it will be important to keep an eye on first principles. The well-understood objective of SAFE investments is that they will be converted into preferred shares at some point in the future, when a preferential financing round takes place. This fact provides a powerful compass setting that indicates the equity classification, as shown in ASC 815-40-25-1. FASB Vice President James Kroeker said in a press release that the standard is an important step in simplifying a complex area of accounting guidelines, which has been a frequent source of publications.
On August 5, 2020, the Financial Accounting Standards Board (FASB) released the update to Accounting Standards 2020-06, Debt – Debt with Conversion and Other Options (sub-theme 470-20) and Derivatives and Hedging – Contrats in Entity`s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity`s Own Equity. AsU simplifies the accounting for convertible instruments by removing the BCF and CCF separation models required by current General Accounting Principles (GAAP). In addition, asu removes certain settlement conditions necessary for equity contracts to qualify for stock classification. The ASU also changes the current calculation of diluted earnings per share (EPS) for convertible bonds containing a CCF and increases the disclosure requirements for convertible instruments. Current US-GAAP is not specifically interested in SAFEs. The FASF has not published specific guidelines for SAFEs. It is therefore essential, in order to determine the proper accounting for SAFEs, to do the following: in addition, the new standard removes certain settlement conditions necessary for equity contracts to qualify for the exception for the amount of derivatives. . . .