Updated guide to accounting for debt and equity instruments
An updated edition of RSM’s A guide to accounting for debt and equity instruments in financing transactions is now available. Distinguishing between debt and equity financing arrangements can be complicated due to the nature of certain instruments and the volume of transaction documents that may need to be reviewed as part of the accounting analysis that can require consideration of a myriad of financial reporting standards. Our publication is intended to be a resource in understanding and analyzing some of the accounting guidance that may be relevant when accounting for debt and equity instruments issued in financing transactions.
The 2025 edition has been updated to incorporate guidance from Accounting Standards Update (ASU) 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, and to reflect the effectiveness of the following ASUs:
- ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)
- 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
- ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
This edition has also been updated to address additional practice issues, including application of the guidance on determining whether an instrument, or embedded feature, is considered indexed to an entity’s own stock in specific situations. Refer to Appendix C of the updated guide for a summary of all significant changes since our last edition.