20 Debt with Conversion and Other Options

Deloitte's Roadmap: Convertible Debt (Before Adoption of ASU 2020-06)

Convertible Debt (Before Adoption of ASU 2020-06)

This Roadmap provides an overview of the requirements in ASC 470-20 related to convertible debt and our insights into and interpretations of how to apply them in practice.

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Preface On the Radar Contacts Chapter 1 — Overview Chapter 2 — Scope Chapter 3 — Contract Analysis Chapter 4 — Traditional Convertible Debt Chapter 5 — Convertible Debt Issued at a Substantial Premium Chapter 6 — Cash Conversion Features Chapter 7 — Beneficial Conversion Features Chapter 8 — Own-Share Lending Arrangements in Connection With Convertible Debt Issuance Chapter 9 — Comparison of U.S. GAAP and IFRS Standards Appendix A — Embedded Derivative Analysis Appendix B — Accounting for Conversion of Convertible Debt Instrument With a Bifurcated Embedded Conversion Option Appendix C — Original Pronouncements Codified in ASC 470-20 Appendix D — Selected ASC Glossary Terms Appendix E — Titles of Standards and Other Literature Appendix F — Abbreviations Appendix G — Roadmap Updates for 2021

This Roadmap provides an overview of the requirements in ASC 470-20 related to convertible debt before the amendments made by ASU 2020-06. It includes our insights into and interpretations of how this accounting guidance should be applied by entities that have not adopted ASU 2020-06. For ease of reference, we have accompanied our discussion with the related authoritative text and other relevant literature.

Determining the appropriate accounting for convertible debt instruments can often be time-consuming and complex and frequently requires the involvement of technical accounting specialists. To properly apply the numerous rules and exceptions in U.S. GAAP, an issuer may need to closely analyze an instrument’s terms and conditions and the related facts and circumstances. The outcome of this analysis can significantly affect the classification, measurement, and earnings impact of the convertible instrument and the associated financial statement ratios.

This Roadmap is intended to help an issuer navigate the guidance, organize its analysis, and arrive at appropriate accounting conclusions. The 2021 edition includes updated and expanded guidance as well as On the Radar, a new section that briefly summarizes emerging issues and trends related to the accounting and financial reporting topics addressed in the Roadmap. Note that in August 2020, the FASB issued ASU 2020-06, which significantly affects the issuer’s accounting for convertible debt instruments. Because this Roadmap is based on GAAP before the amendments made by ASU 2020-06, it should not be used by entities that have adopted that ASU. The 2021 edition of Deloitte’s Roadmap Debt will address an issuer’s accounting for convertible debt after adoption of ASU 2020-06.

This Roadmap is intended to help an issuer navigate the guidance, organize its analysis, and arrive at appropriate accounting conclusions.