FASB proposes guidance on conversions of convertible debt instruments

The Financial Accounting Standards Board has put out a proposed accounting standards update aimed at improving its guidance on induced conversions of convertible debt instruments.

The current guidance in Subtopic 470-20, “Debt — Debt with Conversion and Other Options,” aims to help determine whether transactions should be accounted for as induced conversions (as opposed to debt extinguishments), but stakeholders had suggested to FASB that they weren’t sure how to apply it in the case of convertible debt instruments with cash conversion and other features. The guidance was originally issued before some of those features became common in the market.

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

The board is hoping to get feedback by March 18, 2024; stakeholders can use the electronic feedback form to submit comments.