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ASU 2020-06 includes new disclosure requirements for convertible debt as outlined in FG 6.11.1 through FG 6.11.7. These requirements are in addition to the existing debt disclosures discussed in FSP 12.12. The existing disclosures in FSP 12.12.6A have been superseded by ASU 2020-06.

6.11.1 Disclosure of pertinent rights and privileges—after adoption of ASU 2020-06

Reporting entities should explain pertinent rights and privileges of each convertible debt instrument outstanding.
ASC 470-20-50-1B provides a list of requirements (not all inclusive) for convertible debt.

ASC 470-20-50-1B

An entity shall explain the pertinent rights and privileges of each convertible debt instrument outstanding, including, but not limited to, the following information:

  1. Principal amount
  2. Coupon rate
  3. Conversion or exercise prices or rates and number of shares into which the instrument is potentially convertible
  4. Pertinent dates, such as conversion date(s) and maturity date
  5. Parties that control the conversion rights
  6. Manner of settlement upon conversion and any alternative settlement methods, such as cash, shares, or a combination of cash and shares
  7. Terms that may change conversion or exercise prices, number of shares to be issued, or other conversion rights and the timing of those rights (excluding standard antidilution provisions)
  8. Liquidation preference and unusual voting rights, if applicable
  9. Other material terms and features of the instrument that are not listed above.

6.11.2 Disclosure of contingently convertible instruments—after adoption of ASU 2020-06

In accordance with ASC 470-20-50-1C, for contingently convertible instruments, reporting entities should disclose information about events or changes in circumstances that would adjust or change the contingency or would cause the contingency to be met. In addition, information on whether the shares that would be issued if converted are included in diluted EPS and the reasons why or why not should be disclosed. Other information that is helpful to understand the nature of contingencies and potential impact of conversion should also be disclosed.

6.11.3 Disclosures for each convertible debt instrument—after adoption of ASU 2020-06

In accordance with ASC 470-20-50-1D, reporting entities should disclose the unamortized premium, discount, or issuance costs and, if applicable, the premium amount recorded as paid-in capital in accordance with ASC 470-20-25-13 as well as the net carrying amount.
Public business entities should disclose the fair value of the entire instrument and the level of the fair value hierarchy in accordance with ASC 825.
These disclosures are required to be made at the individual instrument level.

6.11.4 Additional disclosures for convertible debt instruments—after adoption of ASU 2020-06

ASC 470-20-50-1E provides additional information entities should disclose as of the date of the latest statement of financial position presented.

ASC 470-20-50-1E

An entity shall disclose the following information as of the date of the latest statement of financial position presented:

  1. Changes to conversion or exercise prices that occur during the reporting period other than changes due to standard antidilution provisions
  2. Events or changes in circumstances that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed
  3. Number of shares issued upon conversion, exercise, or satisfaction of required conditions during the reporting period
  4. Maturities and sinking fund requirements for convertible debt instruments for each of the five years following the date of most recent statement of financial position presented in accordance with paragraph 470-10-50-1.

6.11.5 Disclosure of interest expense—after adoption of ASU 2020-06

For each period for which a statement of financial performance is presented, reporting entities should disclose, in the aggregate, the effective interest rate for the period and the amount of interest recognized disaggregated by contractual interest expense and the amortization of the premium, discount, or issuance costs.

6.11.6 Disclosures related to fair value option—after adoption of ASU 2020-06

Reporting entities with convertible debt instruments measured at fair value as a result of applying the fair value option should provide disclosures in accordance with ASC 820-10, ASC 825-10, and ASC 470-20.

6.11.7 Derivative disclosures—after adoption of ASU 2020-06

The disclosures in ASC 815 and ASC 470 are required for a conversion option that is accounted for as a derivative.
Further, reporting entities should disclose the following information about derivative transactions entered into in connection with the issuance of convertible instruments, regardless of whether the derivative transactions are accounted for as assets, liabilities, or equity instruments:
  • The terms of the derivative transactions (including terms of settlement)
  • How those derivative transactions relate to the convertible debt instruments
  • Number of shares underlying the derivative transactions
  • Reason for entering into those derivative transactions

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