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PwC is pleased to offer our updated Financing transactions guide. This guide is intended to help our clients and other interested parties implement and apply the applicable accounting and reporting standards.
The accounting guidance for the issuance, modification, conversion, and repurchase of debt and equity securities has developed over many years into a complex set of rules. This guide provides a summary of the guidance relevant to the accounting for debt and equity instruments and serves as a roadmap to the applicable accounting literature. Portions of this guide assume that ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in an Entity’s Own Equity (Subtopic 815-40), have been adopted. This guidance has significantly changed the accounting for convertible debt and has simplified the accounting for contracts in an entity’s own equity. Each chapter discusses the relevant accounting literature and includes specific questions and examples to illustrate its application.
See PwC’s Financial statement presentation guide for information on financial statement presentation and disclosure of the instruments and transactions discussed in this guide. See PwC’s Income taxes guide for income tax accounting considerations related to debt and equity-linked financial instruments.
References to US GAAP
Definitions, full paragraphs, and excerpts from the FASB’s Accounting Standards Codification are clearly labelled. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations, are:
  • Business combinations and noncontrolling interests (BCG)
  • Consolidation and equity method of accounting guide (CG)
  • Derivative instruments and hedging activities (DH)
  • Fair value measurements, global edition (FV)
  • Not-for-profit entities (NP)
  • Carve-out financial statements (CO)
  • Financial statement presentation (FSP)
  • Income taxes (TX)
  • Stock-based compensation (SC)
  • Transfers and servicing of financial assets (TS)
Summary of significant changes
Following is a summary of the recent noteworthy revisions to the guide. Additional updates may be made to future versions to keep pace with significant developments.
Revisions made in February 2021
Chapter 10, ASU 2020-06 effective date and transition
  • This chapter was added to discuss the effective date and transition requirements, including the transition disclosures, related to the adoption of ASU 2020-06.
Revisions made in October 2020
Chapter 3, Debt modification and extinguishment
  • FG 3.4.13 was added to discuss modifications or exchanges of delayed draw term loans.
Chapter 4, Common stock and dividends
  • FG 4.3.3 was added to discuss common stock issuance costs.
  • FG 4.3.4 was added to discuss modifications or exchanges of common stock.
  • FG 4.4.3 was updated to provide additional commentary on dividends in kind.
Chapter 5, Equity-linked instruments model
  • FG 5.6 was added to discuss the analysis of a freestanding equity-linked instrument after adoption of ASU 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), including examples.
  • FG 5.8 was added to discuss the additional disclosures required for contracts in an entity’s own equity after adoption of ASU 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).
Chapter 6, Convertible debt after adoption of ASU 2020-06
  • FG 6 was updated to discuss the accounting for convertible debt after the adoption of ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in an Entity’s Own Equity (Subtopic 815-40). The discussion includes accounting for issuances, conversions, and extinguishments. Additional disclosure requirements are also discussed.
  • The accounting for convertible debt before the adoption of ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in an Entity’s Own Equity (Subtopic 815-40) was moved to FG 6A.
Chapter 7, Preferred stock
  • FG 7.3, including Figure FG 7-3, was added to discuss classification of preferred stock after adoption of ASU 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).
  • FG 7.3.2.2 was added to discuss the accounting for a down round feature in convertible preferred stock after the adoption of ASU 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).
  • FG 7.6.1 was amended to clarify the treatment of commitments to issue shares of tranched preferred stock as a freestanding instrument after the adoption of ASU 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).
  • FG 7.7.1 was added to clarify the accounting for paid-in-kind dividends.
Chapter 9, Share repurchase and treasury stock
  • FG 9.2.2.2 was amended to discuss the treatment of net cash or net share settled forward repurchase contracts in the computation of diluted earnings per share after the adoption of ASU 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).
  • FG 9.2.2.3 was added to discuss the accounting for prepaid forward repurchase contracts.
  • FG 9.2.4.3 was added to discuss the treatment of accelerated share repurchase programs in diluted earnings per share after the adoption of ASU 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).
Copyrights
This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.
The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is reproduced with permission.
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