The Financial Accounting Standards Board (FASB) released what is likely to be its last proposed Accounting Standards Update (ASU) of 2023 on Tuesday, focused on improving the application and relevance of accounting guidance related to induced conversions of convertible debt instruments.

Other proposed ASUs issued by the U.S. accounting standard-setter this year include:

Crypto assets (board approved a new standard in earlier this month)
Income tax disclosures (board approved a new standard earlier this month)
Profits interest awards
Acquired financial asset reporting
Disclosures for income statement expenses

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The proposed ASU on induced conversions of convertible debt instruments is based on a consensus of the FASB’s Emerging Issues Task Force.

When the terms of a convertible debt instrument are changed to induce conversion of the instrument, Subtopic 470-20, Debt—Debt with Conversion and Other Options, provides guidance for determining whether the transaction should be accounted for as an induced conversion as opposed to a debt extinguishment.

Stakeholders provided input to the FASB that it is unclear how to apply the existing induced conversion guidance to convertible debt instruments with cash conversion and other features that have become prevalent in the market since this guidance was originally issued in 2020.

The proposed ASU would address this feedback by clarifying the requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features, should be accounted for as induced conversions.

Stakeholders are encouraged to review and provide input on the proposed ASU by March 18, 2024.