Chapter 9 — Comparison of U.S. GAAP and IFRS Accounting Standards

9.2 Key Differences

The table below summarizes key differences between U.S. GAAP and IFRS Accounting Standards with respect to an issuer’s accounting for convertible debt and other transactions within the scope of ASC 470-20. The table is followed by a detailed explanation of each difference.

	U.S. GAAP	IFRS Accounting Standards
General	An issuer is required to present convertible debt as a liability in its entirety if (1) the equity conversion feature is not bifurcated as an embedded derivative under ASC 815-15, (2) the convertible debt is not within the Cash Conversion subsections of ASC 470-20, and (3) there is no separately recognized equity component that resulted from one of the following: The issuance of the convertible debt instrument at a substantial premium to par. The recognition of a BCF. A modification that increased the fair value of the conversion option. A reclassification of a conversion option that was previously classified as a derivative.	An issuer is required to separate convertible debt into liability and equity components, on the basis of the fair value of the liability component, unless the equity conversion feature must be bifurcated as an embedded derivative.
Convertible debt issued at a substantial premium	There is a rebuttable presumption that the premium associated with convertible debt issued at a substantial premium to par should be presented as equity unless the equity conversion feature is bifurcated as an embedded derivative or the CCF or BCF guidance applies.	There is no special accounting guidance on convertible debt issued at a substantial premium. An issuer is required to separate convertible debt into liability and equity components unless the equity conversion feature must be bifurcated as an embedded derivative.
Convertible debt with CCF	An issuer is required to separate convertible debt with a CCF into liability and equity components unless the equity conversion feature is bifurcated as an embedded derivative. The liability and equity components are separated by using a with-and-without approach on the basis of the fair value of similar nonconvertible debt.	An issuer is required to bifurcate the equity conversion feature in convertible debt with a CCF as an embedded derivative liability.
Convertible debt with noncontingent BCF	An issuer is required to separate convertible debt with a noncontingent BCF into liability and equity components unless (1) the conversion feature must be bifurcated as an embedded derivative or (2) the CCF guidance applies. The equity component is measured at its initial intrinsic value.	There is no special accounting guidance for convertible debt with a noncontingent BCF. An issuer is required to separate convertible debt into liability and equity components unless the equity conversion feature must be bifurcated as an embedded derivative.
Convertible debt with contingent BCF	An issuer is required to recognize a contingent BCF in equity by reallocating an amount from the liability if or when the contingency is triggered unless (1) the conversion feature must be bifurcated as an embedded derivative, (2) the CCF guidance applies, or (3) the issuer has elected a fair value option for the instrument.	There is no special accounting guidance on convertible debt with a contingent BCF. An issuer is required to separate convertible debt into liability and equity components at inception unless the equity conversion feature must be bifurcated as an embedded derivative. An equity component is not remeasured when conversion price contingencies are triggered.
Conversions in accordance with original terms	No gain or loss is recognized on the conversion of traditional convertible debt in accordance with the original terms unless both (1) conversion occurred upon the issuer’s exercise of a call option and (2) the conversion option was not substantive at issuance. Issuers may be required to recognize a gain or loss or an expense upon the conversion of convertible debt subject to the CCF or BCF guidance or, if the conversion feature was not substantive at issuance, upon the issuer’s exercise of a call option. Upon conversion of a convertible debt instrument that has a separate equity component for a reason other than a CCF or BCF, the unamortized discount is recognized immediately as interest expense on that date.	No gain or loss is recognized upon the conversion of convertible debt at maturity in accordance with the original terms.
Extinguishments of convertible debt — allocation of the consideration paid upon redemption or repurchase	Traditional convertible debt — No allocation of the consideration paid. Convertible debt with a CCF — Consideration paid is allocated between the liability and equity components on the basis of the fair value of the liability component. Convertible debt with a BCF — Consideration paid is allocated between the liability and equity components on the basis of the current intrinsic value of the equity component.	Consideration paid is allocated between the liability and equity components on the basis of the fair value of the liability component.
Own-share lending arrangements executed in contemplation of convertible debt issuance or other financing	Special accounting guidance applies to equity-classified own-share lending arrangements executed in contemplation of convertible debt issuance or other financing.	There is no special accounting guidance for such arrangements.

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