March 18, 2024
File Reference No. 2023-ED600
Sent via email to [email protected]
RE: Debt-Debt with Conversion and Other Options (Subtopic 470-20)
Dear Director:
The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee has reviewed the Exposure Draft — Debt-Debt Conversion and Other Options (Subtopic 470-20), issued by the Financial Accounting Standards Board (FASB). The VSCPA is the leading professional association in Virginia dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of nearly 13,000 individual members who actively work in public accounting, private industry, government, and education.
As requested, we are responding to your questions in order:
- Do you agree with the proposed amendments to the induced conversion criterion in paragraph 470-20-40-13(b) that would require that an inducement offer preserve the consideration (in form and amount) issuable pursuant to conversion privileges provided in the terms of the debt instrument? Please explain why or why not.
Yes. An inducement offer represents concrete, actionable criteria for determining when to apply a conversion, which is beneficial to financial statement stakeholders in determining how to evaluate debt conversion instruments.
- Do you agree that the proposed induced conversion criterion in paragraph 470-20-40-13(b) should be assessed as of the date the inducement offer is accepted by the convertible debt holder? Please explain why or why not.
Yes. Doing so provides clarity for practitioners and stakeholders to apply consistently the inducement date is accepted by the debt holder, which is consistent with other FASB guidance.
- Do you agree with the proposed amendments in paragraph 470-20-40-13A(c) that, if the debt has been exchanged or modified (without being deemed to be substantially different) within the one- year period preceding the offer acceptance date, then the conversion privileges provide in the debt terms that existed one year before the acceptance date (rather than the conversion privileges provided in the terms of the debt instrument) should be used for the induced conversion assessment? If not, please explain why and state which alternative approach you would support (see paragraph BC52 for other approaches considered by the Task Force, including a principle- based approach).
Yes. The approach the board is using in this proposal adequately considers necessary accounting mechanics and avoids any potential disincentives.
- Do you agree that all convertible debt instruments, including convertible debt instruments that are not currently convertible, should be eligible for induced conversion accounting if they contained a substantive conversion feature at issuance and the other criteria in paragraph 470-20-40-13 are met? Please explain why or why not.
Yes. The criteria address adequately any concerns about manipulation.
- Would the proposed amendments provide decision-useful information? Are the proposed amendments clear and operable? Please explain why or why not.
Yes. The clarity of the amendments provides detailed criteria of when inducements apply is helpful for both practitioners and financial statement stakeholders.
- The proposed transition requirements would allow entities to apply the proposed amendments on either a prospective or a retrospective basis. Would the information required to be disclosed under the proposed transition method be decision useful? Please explain why or why not. Are the proposed transition requirements operable? If not, why not and what transition method would be more appropriate and why
Yes. The disclosure information under the transition method guidance is useful. Stakeholders should see value in understanding the reason for any prospective or retrospective adoption.
- In evaluating the effective date, how much time would be needed to implement the proposed amendments? Should the effective date for entities other than public business entities be different from the effective date for public business entities? Should early adoption be permitted? Please explain why or why not.
We believe that two years from the date of approval of the amendments should be sufficient time for any entities to adopt the guidance. We further believe that the effective date can be the same for public and non-public entities. We encourage early adoption for organizations that are prepared to do so.
The VSCPA appreciates the opportunity to respond to this update. Please direct any questions or concerns to VSCPA Vice President, Advocacy Emily Walker, CAE, at [email protected] or (804) 612- 9428.
Sincerely,
Zach Borgerding, CPA
Chair 2023-2024
VSCPA Accounting & Auditing Advisory Committee
VSCPA Accounting & Auditing Advisory Committee 2023-2024
Zach Borgerding, CPA — Chair
Michael Phillips, CPA — Vice Chair
David Allen, CPA
Scott Davis, CPA
Joshua Keene, CPA
Nick Kinsler, CPA
Daniel Martin, CPA
Brian Minor, CPA
Elisa Obillo, CPA
Krisia Raya, CPA
Charles Valadez, CPA
Natalya Yashina, CPA