Convertible Debt and Its Never Ending Financial Statement Destruction

While preparing for the next client argument, I mean discussion, involving the issuance of convertible debt I was reminded of the additional effects certain provisions of EITF 00-19 has on other outstanding financial instruments / derivatives.

As anyone with outstanding convertible debt is aware, the key point to simplifying the accounting for any conversion feature that appears to require derivative accounting is to force the feature into being classified as permanent

While preparing for the next client argument, I mean discussion, involving the issuance of convertible debt I was reminded of the additional effects certain provisions of EITF 00-19 has on other outstanding financial instruments / derivatives.

As anyone with outstanding convertible debt is aware, the key point to simplifying the accounting for any conversion feature that appears to require derivative accounting is to force the feature into being classified as permanent equity.   In general, the best way to classify the resulting derivative as permanent equity is to convince yourself, your auditor, and in most cases the SEC, that your debt qualifies as a “conventional convertible debt” as unclearly defined by paragraph 4 of EITF 00-19 and then by the equally obscure EITF 05-02. Continue reading “Convertible Debt and Its Never Ending Financial Statement Destruction”