Preface
We are pleased to present the 2023 edition of
Convertible Debt (Before Adoption of ASU 2020-06). This Roadmap, which is
substantially unchanged from the 2022 edition, provides an overview of the
requirements in ASC 470-201 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.
In August 2020, the FASB issued ASU 2020-06,
which significantly affects the issuer’s accounting for convertible debt instruments
(see Chapter 1). 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. This Roadmap will not be updated after 2023 because ASU 2020-06 is
effective for all entities for fiscal years beginning after December 15, 2023. For
information about an issuer’s accounting for convertible debt after adoption of ASU
2020-06, see Deloitte’s Roadmap Issuer’s Accounting for Debt.
Be sure to check out On the Radar (also available as a stand-alone publication),
which briefly summarizes emerging issues and trends related
to the accounting and financial reporting topics addressed
in the Roadmap.
We hope you find this Roadmap to be a useful
resource, and we welcome your suggestions for future improvements. If you need
assistance with applying the guidance or have other questions about this topic, we
encourage you to consult our technical specialists and other professional advisers.
Footnotes
1
For a list of the titles of standards and other literature
referred to in this publication, see Appendix E. For a list of
abbreviations used in this publication, see Appendix F.