FASB Issues Guidance on Convertible Instruments and Contracts in an Entity’s Own Equity

The FASB has issued an ASU, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which “simplifies accounting for convertible instruments by removing major separation models required under current Generally Accepted Accounting Principles (GAAP).” The ASU is expected to result in “more convertible debt instruments . . . reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features.” In addition, the ASU “removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it” and “simplifies the diluted earnings per share (EPS) calculation in certain areas.”

For more information, see Deloitte's Heads Up newsletter as well as the press release, FASB in Focus, and video on the FASB’s Web site.