Accounting for convertible debt: a fundamental financial instrument approach to accounting for convertible debt as a single instrument

Casson, P. (1996) Accounting for convertible debt: a fundamental financial instrument approach to accounting for convertible debt as a single instrument (Discussion Papers in Accounting and Management Science, 96-116) Southampton, UK. University of Southampton 27pp.

Abstract

The fundamental financial instrument approach of the FASB proposes that a compound instrument, such as a convertible bond, can be understood as being made up of fundamental financial instruments. Two methods of accounting for a convertible bond are seen as consistent with this approach: (a) recognise the fundamental components of a convertible bond separately in the accounts; and (b) analyse a convertible bond in terms of its fundamental components and account for it as a single instrument. There is currently disagreement amongst accounting regulators as which of these methods should be used.

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