3.1 Overview

Because U.S. GAAP contain several disparate sets of accounting requirements that might apply to a convertible debt instrument, an issuer can save time by organizing its accounting analysis into a framework that is broadly consistent with the order of precedence among those sets of requirements (see Section 3.2). The issuer’s accounting analysis should include a careful evaluation of an instrument’s contractual terms (see Section 3.3) and an assessment of whether a transaction comprises multiple freestanding financial instruments or should be combined with other items (see Section 3.4). Further, an issuer may be required to allocate the transaction amount among multiple freestanding financial instruments before applying any specific classification and measurement approach to a convertible debt instrument (see Section 3.5).