FASB proposes guidance on conversions of convertible debt instruments

The Financial Accounting Standards Board Proposed accounting standard updates It aims to improve guidance on induced conversions of convertible debt products.

The current guidance in Subtopic 470-20, Debt—Debt with Conversion and Other Options, is intended to help determine whether a transaction should be accounted for as an induced conversion (rather than an extinguishment of debt). However, stakeholders indicated to the FASB whether the transaction should be accounted for as an induced conversion. I don’t see how that would apply in the case of convertible debt products with cash conversion and other features. This guidance was originally published before some of these features were commonplace in the market.

The proposal clarifies the requirements for determining whether certain settlements of convertible debt instruments with cash conversion features should be accounted for as induced conversions.

The Board expects to receive feedback by March 18, 2024. Those involved are electronic feedback form To submit a comment.