FASB ISSUES Accounting Standards Update 2024-04 DEBT – DEBT WITH CONVERSION AND OTHER OPTIONS (Subtopic 470-20) Induced Conversions of Convertible Debt Instruments - November 2024
The Board is issuing this Update to improve the relevance and consistency in application of the induced conversion guidance in Subtopic 470-20, Debt— Debt with Conversion and Other Options. When the terms of a convertible debt instrument are changed to induce conversion of the instrument, current generally accepted accounting principles (GAAP) provide guidance for determining whether the transaction should be accounted for as an induced conversion (as opposed to a debt extinguishment). The induced conversion guidance was written in the context of share-settled convertible debt before cash convertible instruments became prevalent in the marketplace. That fact, as well as amendments to the accounting for convertible debt instruments with cash conversion features made in Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, has resulted in questions from stakeholders about how to determine whether a settlement of convertible debt (particularly, cash convertible instruments) at terms that differ from the original conversion terms should be accounted for under the induced conversion or extinguishment guidance.
Who Is Affected by the Amendments in This Update?
The amendments in this Update affect entities that settle convertible debt instruments for which the conversion privileges were changed to induce conversion.
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