9.1 Background

An understanding of the differences between U.S. GAAP and IFRS Accounting Standards in an issuer’s accounting for convertible debt and other transactions within the scope of ASC 470-20 may be relevant for:

• U.S. entities that consolidate subsidiaries or other foreign operations that report under IFRS Accounting Standards.
• U.S. entities that provide financial statement information to a parent entity that reports under IFRS Accounting Standards.
• U.S. entities that negotiate transaction terms for contracts on own equity with entities that report under IFRS Accounting Standards (and vice versa).
• Entities that seek to compare their financial statements with those of international competitors.
• Foreign entities that report under IFRS Accounting Standards and consolidate subsidiaries or other operations that report under U.S. GAAP.
• Foreign entities that report under IFRS Accounting Standards and provide financial statement information to a parent entity that reports under U.S. GAAP.
• Investors and other users of financial statements that seek to compare financial statements prepared under U.S. GAAP and IFRS Accounting Standards.
• Standard setters and others that consider opportunities to converge accounting requirements.
• Parties that participate in discussions of new accounting requirements under U.S. GAAP or IFRS Accounting Standards or that seek to influence the development of new accounting requirements.

Under IFRS Accounting Standards, an issuer applies IAS 32 to determine the classification of convertible securities. In making this determination, the issuer assesses whether an instrument must be separated into liability and equity components. IAS 32 has a broader scope than does ASC 470-20. For example, IAS 32 addresses the accounting for outstanding equity shares and freestanding contracts to purchase or sell the issuer’s equity shares (e.g., warrants, options, and forwards on the entity’s own equity). The discussion of key differences below applies only to contracts within the scope of ASC 470-20.