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 (CG)
- Derivative instruments and hedging activities (DH)
- Fair value measurements (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 December 2022
Chapter 1, Debt instruments
- FG 1.3 was updated related to treatments of costs associated with entering into a line of credit or revolving-debt arrangement.
- FG 1.4.3 was updated to provide further information on the subsequent measurement of debt that settles through the issuance of a variable number of common shares with a then-current fair value equal to a fixed dollar amount.
- FG 1.6.1 was updated with additional guidance on evaluating the net settlement criteria for certain share settled redemption features.
Chapter 3, Debt modification and extinguishment
- Question FG 3-1 in FG 3.3 was added to address whether ASU 2022-02 is applicable to a borrower’s accounting for troubled debt restructurings.
- Example FG 3-5 in FG 3.4.6 was amended to clarify how a reporting entity that has multiple modifications within a twelve-month period could apply the 10% cash flow test.
Chapter 5, Equity-linked instruments model
Chapter 6, Convertible debt after adoption of ASU 2020-06
- Example FG 6-2 in FG 6.6 was added to demonstrate how to account for the extinguishment of a convertible debt instrument that was issued with a substantial premium.
- Discussion of the determination of whether a transaction would be considered an induced conversation or an extinguishment following adoption of ASU 2020-06 in FG 6.8.2 was clarified.
- Guidance on EPS and disclosures of convertible debt instruments after adoption of ASU 2020-06 were moved from FG 6.10 and FG 6.11, respectively, to FSP 7.5.6 and FSP 12.12.6.
Chapter 7, Preferred stock
- Question FG 7-7 on the classification of convertible preferred equity certificates was moved from FG 5 to FG 188.8.131.52.
- Question FG 7-9 in FG 7.3.4 was added to address mezzanine equity presentation for redeemable preferred stock instruments where there is a cap on the amount of preferred stock that the issuer can be forced to redeem.
- Questions FG 7-11 and FG 7-12 in FG 184.108.40.206 were added to address the appropriate presentation of callable preferred stock when the preferred shareholders control the issuer’s board of directors.
- Question FG 7-16 in FG 220.127.116.11 was added to discuss the subsequent measurement of a mezzanine equity classified preferred stock instrument that contains a separated embedded derivative.
- Example FG 7-4 in FG 18.104.22.168 was added to illustrate how to subsequently measure a mezzanine equity classified preferred stock instrument that is redeemable based on an index.
- Guidance on disclosures of preferred stock instruments after adoption of ASU 2020-06 was moved from FG 7.11 to FSP 22.214.171.124.
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.