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FASB amends convertible debt & contracts in own equity

Defining Issues | August 2020

KPMG reports on amendments to reduce accounting models for convertible instruments and simplify contracts in own equity.

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ASU 2020-06 reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification. 

Applicability

ASU 2020-06

  • Entities that issue convertible instruments or contracts in an entity’s own equity. 

Relevant dates

Effective datePublic business entities that are SEC filers and not eligible for smaller company reportingAll other entities

Annual periods – Fiscal years beginning

Dec. 15, 2021

Dec. 15, 2023

Interim periods – In fiscal years beginning after

Dec. 15, 2021

Dec. 15, 2023

Early adoption allowed in fiscal years beginning after

Dec, 15, 2020

Dec. 15, 2020

Key impacts

  • Reduces the number of models used to account for convertible instruments
  • Amends diluted EPS calculations for convertible instruments
  • Amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity’s own shares to be classified in equity

Report contents

  • Applicability
  • Simplifying the accounting for convertible instruments
  • Simplifying the accounting for contracts in an entity’s own equity
  • Amendments to diluted EPS guidance
  • Effective date and transition

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FASB simplifies accounting for convertible instruments and contracts

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How convertible debt will be affected by ASU 2020-06

KPMG provides guidance on how ASU 2020-06 will affect convertible debt an issuer can settle in cash and/or shares.

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