Which type of financial instrument is preferred? Sometimes the answer is issuing a security that possesses characteristics of both debt and equity.
The complexity in accounting for convertible securities can have unexpected financial reporting impacts that need to be fully evaluated. For example, embedded derivatives may need to be divided and reported at fair value, with changes in fair value recorded in the income statement each reporting period.
Issuers need to weigh the commercial impact of including certain features within convertible securities against the potential accounting and financial reporting results. Consider these variables in negotiating the specific terms of the instruments your company will issue in the marketplace.
Companies may need to:
A combination of embedded rights within “hybrid” securities include:
As the accounting for complex debt/equity financing continues to evolve, it is important to keep ahead of the issues. PwC can help you: