Handbook: Debt and equity financing

Using Q&As and examples, we provide interpretive guidance on debt and equity financings.  This August 2023 edition incorporates our latest interpretations based on frequent questions we experience in practice.

Applicability

• All entities

Relevant dates

• Effective immediately

Complex instruments, complex literature

The array of accounting literature on financial instruments can be bewildering, and the varieties and complexities of modern financial instruments are sometimes staggering. Taken together, it’s not an exaggeration to say that accounting for debt and equity financing transactions can seem daunting.

To simplify some of these complexities, the FASB issued ASU 2020-06 in August 2020, which made the most substantial changes to accounting for convertible financial instruments and contracts in an entity’s own equity in many years. This was followed in May 2021 by guidance in ASU 2021-04 on certain modifications or exchanges of freestanding equity-classified written call options.

Determining the right accounting can require you to maneuver through multiple standards and models just to arrive at the starting point.

This Handbook uses roadmaps to navigate the different standards, explaining what guidance applies to what types of instruments. It provides an in-depth look at the broad and often complex issues related to the classification, measurement, presentation and disclosure of financing instruments. And it includes examples demonstrating how to apply the standards to some common financing transactions.

We hope you find this Handbook useful in understanding how the guidance fits together and applies to financial instruments – from the simple to the most complex.

Report contents

• Roadmap to the guidance
• Debt
• TDRs, debt modifications and extinguishments
• Equity
• Distinguishing liabilities from equity
• SEC guidance on redeemable equity-classified instruments
• Contracts in an entity’s own equity (before adoption of ASU 2020-06)
• Contracts in an entity’s own equity (after adoption of ASU 2020-06)
• Hybrid instruments with embedded features
• Convertible instruments (before adoption of ASU 2020-06)
• Convertible instruments (after adoption of ASU 2020-06)
• Comprehensive examples
• Effective dates and transition

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