FASB addresses guidance on induced conversions of convertible debt instruments

FASB issued a proposed Accounting Standards Update (ASU) aimed at improving the application and relevance of accounting guidance related to induced conversions of convertible debt instruments.

Public comments on FASB ASC Subtopic 470-20, Debt — Debt With Conversion and Other Options, will be accepted through March 18, 2024, through FASB’s electronic feedback form, email, or mail.

The proposed ASU is based on a consensus of FASB’s Emerging Issues Task Force, according to a news release.

When the terms of a convertible debt instrument are changed to induce conversion of the instrument, the ASU sets forth guidance for determining whether the transaction should be accounted for as an induced conversion (as opposed to a debt extinguishment). However, according to the news release, the proposed amendments are a result of stakeholder feedback that it was unclear how to apply the existing induced conversion guidance to convertible debt instruments with cash conversion.

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