12. April 2021

Safe Agreement Accounting

Understanding the basic mechanics of these instruments and their application with US GAAP is the only way to ensure proper accounting processing and disclosure and can be a critical accounting issue for your business. We`re here to help! If you have questions about convertible bonds or SAFE, please contact a member of the techtalk@withum.com Technology Services team or fill out the form below. „Crowdfunding in crowdfunding is something we are monitoring, the use of a new start-up financing tool, called „SAFE“, in offers aimed at a broad investor base, mostly based on retail. A safe meaning „simple agreement on future equity“ is an agreement between an investor and a company in which the company generally promises to give the investor a future stake in the company if certain triggering events occur. ASC Subtopic 815-40 deals with „Contracts in Entity`s Own Equity“ and is therefore relevant to determining the proper accounting of FASCs. Paragraph 815-40-25-1 states: „The initial classification of contracts under this sub-theme is generally based on the following principle: (a) contracts that require a net bar count are assets or liabilities; and (b) contracts requiring a settlement of shares are equity instruments.¬†Paragraph 815-40-25-4 adds: „… unless the economic substance indicates something else… Initially, contracts are considered equity in both cases: 1) contracts requiring a physical liquidation or a net stock count…¬†Honestly, the direct impact of the SEC`s assumption of the SAFE bill is not particularly significant. This is because the SEC`s reporting obligations generally apply only to publicly traded companies. These companies are generally well beyond the period of their lives when they would have a reason to issue SAFes, or that they would be waiting. A classic without damage, not a fault scenario. Assuming that the instrument is a liability and that the issuer does not choose (the fair value option) or is not necessary to measure the entire instrument at fair value, convertible debt securities and similar instruments require a targeted analysis of characteristics that require separate accounting as incorporated financial instruments (separately and valued at the fair value of each reference period).