On August 5, 2020, the FASB issued ASU 2020-06,1 which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s key provisions, transition requirements, and effective dates are discussed below.
FASB Accounting Standards Update (ASU) No. 2020-06, Debt — Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”
Freestanding contracts on an entity’s own equity are classified as assets or liabilities if they are within the scope of ASC 480 (e.g., certain warrants on redeemable shares).
See Section 6.1.3 of Deloitte's A Roadmap to the Issuer's Accounting for Convertible Debt for more information.
See footnote 4.
As defined by the SEC.
FASB Accounting Standards Update No. 2017-11, (Part I) Accounting for Certain Financial Instruments With Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception.