Comment: induced conversion accounting

In our comments responding to the FASB’s proposed guidance, Debt—Debt with Conversion and Other Options (Subtopic 470-20), we generally support the Board’s proposal but offer a few suggestions to further clarify various aspects of the guidance, including several issues outlined below:

1. We ask the Board to clarify what it means by “form” of consideration and to specifically clarify whether equity-classified preferred shares would be considered the same form of consideration as common shares.
2. We ask the Board to clarify in ASC 470-20-40-13A(b) whether “[c]hanges that result in the amount of cash (or other assets) and number of shares being indexed to something other than the future price of the issuer’s shares” should be accounted for as an extinguishment. We also ask for clarification as to whether (1) an entity is allowed to account for an inducement offer as an induced conversion if it does not introduce a new nonshare price variable, and (2) a volume-weighted average price (VWAP) calculation based on preacceptance-date share prices would affect how an entity accounts for the form of consideration
3. We ask the Board to clarify how to calculate inducement expense when a period of time elapses between the offer acceptance date and the settlement date, resulting in a settlement that differs from the amount calculated at the offer acceptance date.
4. We ask the Board to clarify whether the conversion date is either the acceptance date or the day when consideration is transferred to the bond holder in Case C in ASC 470-20-55-9A.

To read more about these and our other comments, download our comment letter here.