September 14, 2023

The Emerging Issues Task Force (EITF) met on September 14, 2023, and deliberated the following topic:

Issue No. 23-A, “Induced Conversions of Convertible Debt Instruments.” The Task Force reached a consensus-for-exposure to amend the induced conversions guidance to improve its relevance. The Task Force reached a consensus-for-exposure to:

1. Pursue the preexisting contract approach for induced conversion assessment. Under this approach, only conversions that include the issuance of all the consideration (in form and amount) pursuant to conversion privileges included in the terms of the debt at issuance would be accounted for as induced conversions.
2. Include clarifications that, under the preexisting contract approach, when evaluating whether the amount of cash (or combination of cash and shares) issuable under the original conversion privileges is preserved by the inducement offer:
   1. An entity should determine the amount of cash and number of shares that would be issued based on the fair value of the entity’s shares as of the offer acceptance date.
   2. If within a year leading up to the offer acceptance date the debt has been exchanged or modified without being deemed to be substantially different, then the debt terms that existed a year ago should be used in place of the terms of the debt at issuance.
3. Apply induced conversion accounting to all convertible debt instruments, including instruments that are not currently convertible, so long as those instruments contained a substantive conversion feature as of the time of issuance and are within the scope of the guidance in Subtopic 470-20, Debt—Debt with Conversion and Other Options.

The Task Force also reached a consensus-for-exposure to permit either (a) prospective or (b) retrospective transition for convertible debt instruments settled after the adoption of the amendments in Update 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. The Task Force also reached a consensus-for-exposure on certain transition disclosures.

The Board will consider for ratification the consensus-for-exposure on Issue 23-A on October 4, 2023. The next EITF meeting has not been scheduled. For more information on the EITF, visit https://www.fasb.org/eitf.

EITF Meeting Recaps are provided for those interested in following the activities of the EITF. More details on the EITF’s projects can be found within the meeting minutes, which will be published on the FASB website in the coming weeks.