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Convertible instruments: 5 things you need to know · PwC's accounting podcast

• 0:00
  SPEAKER_03: Thought Leadership from PWC.
• 0:06
  SPEAKER_01: Welcome to PWC's Accounting Podcast.
• 0:09
  SPEAKER_01: I'm Heather Horn.
• 0:12
  SPEAKER_01: Thanks for joining me as we continue our Tuesday series in which one of our all-star podcast guests takes over the podcasts, picks the topics for the month, and joins me on all the episodes.
• 0:25
  SPEAKER_02: We picked this topic, Heather, because it's obviously a very complex area.
• 0:30
  SPEAKER_02: There's some new standard setting going on in the area.
• 0:34
  SPEAKER_02: And it's one of these areas where I always think when you're getting into convertible instruments, you should phone a friend.
• 0:41
  SPEAKER_04: If a company is considering a convertible preferred stock issuance, it's a really good idea to get the accountants involved early and consider all the ramifications of different features.
• 0:50
  SPEAKER_01: My guest for August is Brett Dooley, Deputy Chief Accountant in PWC's National Office, who leads our financial instruments team.
• 0:59
  SPEAKER_01: In today's episode, Brett's joined by Chip Curry, another National Office partner with a focus on financial instruments.
• 1:07
  SPEAKER_01: So you'll want to stay tuned to see if Brett can meet his commitment to keep each episode under 25 minutes now that he's added a guest.
• 1:16
  SPEAKER_01: Brett and Chip share insights on convertible debt, including an overview of why companies use it for financing and how to account for it in lieu of recent changes to the guidance.
• 1:26
  SPEAKER_01: From PL charges to EPS, they've a lot to share.
• 1:31
  SPEAKER_01: So listen in.
• 1:37
  SPEAKER_01: Brett, welcome back to your month of episodes where we've promised to share our insights in 25 minutes or less for each episode.
• 1:45
  SPEAKER_01: And so far we're two for two, so let's make this three for three.
• 1:48
  SPEAKER_01: And Chip Curry, so nice as always to have you with us.
• 1:52
  SPEAKER_01: And today's topic is convertible instruments.
• 1:55
  SPEAKER_01: So obviously, in 25 minutes, we are not going to hit everything about convertible instruments.
• 2:01
  SPEAKER_01: But Brett, maybe before we get going, um, do you want to quickly share why this topic?
• 2:05
  SPEAKER_01: And then we can jump straight into your first reminder.
• 2:09
  SPEAKER_02: Yeah, I think you know, we picked this topic, Heather, because um it's obviously a very complex area.
• 2:14
  SPEAKER_02: Um there's some new standard setting going on in the area.
• 2:18
  SPEAKER_02: Um and it's one of these areas where I always think when you're getting into convertible instruments, you should phone a friend and get other people involved involved.
• 2:26
  SPEAKER_02: And so while we're like you said, we're not gonna deep dive into these topics.
• 2:30
  SPEAKER_02: Uh hopefully as we go through, we'll give some people dealing with these instruments maybe a little reminder or maybe a reminder of a place where they need to ask more questions.
• 2:40
  SPEAKER_01: Okay, perfect.
• 2:41
  SPEAKER_01: I do think that might be the number one objective here is just telling people what they need to dig into deeper.
• 2:47
  SPEAKER_01: But with that, Brett, what's our first reminder?
• 2:50
  SPEAKER_02: Yeah, I think our first reminder is just general.
• 2:52
  SPEAKER_02: And it's where financing decisions are obviously complex.
• 2:56
  SPEAKER_02: With convertible instruments, it's usually all about the value of that embedded equity option.
• 3:01
  SPEAKER_02: So, you know, when companies are thinking about how to finance themselves, there's there's a lot of different factors that come into play.
• 3:07
  SPEAKER_02: Uh, and convertible instruments are either debt or preferred stock instruments that can be converted or exchanged for a stated number of common shares, generally at the option of the investor.
• 3:18
  SPEAKER_02: So you can think of a convertible debt instrument, for example, as a combination of a debt instrument and a written option on the company's own stock.
• 3:25
  SPEAKER_02: And because of this value of the option that's going along with the debt, companies will often pay less interest or lower dividends on preferred shares than they would have if they had issued a plain vanilla instrument.
• 3:38
  SPEAKER_04: Yeah, and if you if you think about it from the investor side, it gives the investor a chance to invest in a company and benefit for any appreciation in stock price.
• 3:47
  SPEAKER_04: So if stock price goes up, you know, through that conversion rate, the ability to convert, but they'll have some minimum level of you know, coupon, minimum return.
• 3:55
  SPEAKER_04: Um, in a convertible debt instrument, if the if the instrument expires where the conversion option is out of the money, you're gonna get back par.
• 4:03
  SPEAKER_04: So you're gonna get that guaranteed your investment back plus minimum return.
• 4:07
  SPEAKER_04: Preferred stock instruments can be a little more complex, um, but they usually have some sort of redemption features that allow the investor to get out at like liquidation preference based upon some contingent event occurring.
• 4:20
  SPEAKER_04: So they they're similarly designed to provide investors the ability to participate in upside, but also have some sort of downside protection.
• 4:27
  SPEAKER_01: So it's almost, I mean, because Brett said it also for the companies, they're getting a lower interest rate.
• 4:32
  SPEAKER_01: So from that point of view, it's kind of win-win.
• 4:34
  SPEAKER_01: The investors are getting some sort of guarantee and upside, and then for the company, they're also getting maybe that they're paying less.
• 4:43
  SPEAKER_01: But that said then, do we see certain types of companies issuing these, or is it kind of across the board just depends on your own sort of financing strategy, or what or what are we seeing?
• 4:53
  SPEAKER_02: Yeah, we do see a range.
• 4:54
  SPEAKER_02: Um, you know, convertible debt is issued by both public and and private companies.
• 4:59
  SPEAKER_02: Uh, when we get into convertible preferred instruments, you tend to see more in the private company space.
• 5:04
  SPEAKER_02: Those types of instruments um can be really complex and more individually negotiated than with public companies.
• 5:11
  SPEAKER_02: Sometimes companies issue convertible debt when they need financing, and the traditional debt market is just expensive.
• 5:18
  SPEAKER_02: So um they they issue convertible debt to take advantage of um that lower interest coupon and also to take advantage of when you have volatile equity markets that make the value of that conversion option uh more valuable.
• 5:30
  SPEAKER_01: Yeah, and I guess I did say win-win, but from the company side, you are giving up something as well.
• 5:36
  SPEAKER_01: So you're you can't just focus on that coupon.
• 5:39
  SPEAKER_01: How about from the investor side though, Chip?
• 5:41
  SPEAKER_04: Uh well, you know, again, I think from the investor side too, it varies.
• 5:44
  SPEAKER_04: You know, some typical investors in these instruments might be investment companies or private equity firms looking again to participate in potential equity upside, but have some of the downside protection we mentioned earlier.
• 5:57
  SPEAKER_04: Other investors might be looking to create arbitrage strategies.
• 6:00
  SPEAKER_04: So unlock the value of an option that's embedded in a debt instrument.
• 6:06
  SPEAKER_04: And so what you might see them do is invest in the convertible bond.
• 6:10
  SPEAKER_04: And then what they'll do is sort of hedge that position by shorting the stock and try to sort of benefit from the arbitrage opportunity that you can get there.
• 6:18
  SPEAKER_04: Um, so again, it varies a little bit.
• 6:21
  SPEAKER_01: Well, it definitely sounds like either way and you know, whatever the motivation of the company, it's critical to make sure they understand the value of what they're giving up and not just focus, as I said, on that, oh, my coupon is 1% less or whatever else, and not think about what you might be giving up for the future.
• 6:37
  SPEAKER_01: So then, all of that said, then if we start thinking about accounting, then this guidance has changed, right?
• 6:45
  SPEAKER_01: So, what would we say about that?
• 6:47
  SPEAKER_04: Yeah, so that's our number two point.
• 6:49
  SPEAKER_04: Absolutely right.
• 6:49
  SPEAKER_04: Heather, the the the guidance has changed.
• 6:51
  SPEAKER_04: So the new guidance that came out that we're referring to was in ASU 2020.
• 6:56
  SPEAKER_04: So it was issued a couple of years ago.
• 6:58
  SPEAKER_04: One of the principal goals of that guidance was to simplify the accounting for convertible debt and reduce the number of accounting models down to basically three accounting models, which is convertible debt that we account for as a single unit of account, convertible debt where we bifurcate or separately account for the conversion option as a result of applying the derivatives guidance, and convertible debt that's issued at a substantial premium.
• 7:24
  SPEAKER_04: Now, while while we simplified it, that doesn't mean it's simple.
• 7:28
  SPEAKER_04: It just means it's less complex than it used to be.
• 7:32
  SPEAKER_00: Yeah, and already from your description, it's it does not sound like it's not complex.
• 7:37
  SPEAKER_02: It's not.
• 7:37
  SPEAKER_02: And and now that this guidance has been um in practice for a little bit, we're now starting to see some of these instruments actually settle via conversion.
• 7:45
  SPEAKER_02: And one thing I think it's important to note that in changing the accounting model for convertible debt, the accounting for the conversion of the instruments has also changed.
• 7:54
  SPEAKER_02: So under the new guidance, assuming you haven't bifurcated that conversion option because of the derivative guidance, uh, if convertible debt uh is converted pursuant to its original terms, you're gonna follow conversion accounting.
• 8:09
  SPEAKER_02: Now, in the past, convertible instruments that had a cash settlement alternative that an issuer can elect upon conversion, those were generally accounted for under the extinguishment model.
• 8:19
  SPEAKER_02: So it had the potential to create PL upon settlement based on the fair value of that liability component.
• 8:26
  SPEAKER_02: Now, under the new guidance, the conversion of these instruments follow what we call conversion accounting, where the settlement of the transactions generally doesn't create PL.
• 8:34
  SPEAKER_02: It's just impacts the equity section of the balance sheet.
• 8:37
  SPEAKER_04: And that was a really big change.
• 8:40
  SPEAKER_04: So, as an example, you let's say you're a company and you issued a convertible debt agreement that in the industry is frequently referred to as instrument X.
• 8:49
  SPEAKER_01: I know you still never gave me a satisfactory explanation of that chip from past podcasts, but I'll let you move on.
• 8:54
  SPEAKER_04: So Yeah, I'm I'm an accountant.
• 8:57
  SPEAKER_04: I don't come up with the marketing names for these instruments.
• 8:59
  SPEAKER_04: So I don't know where it's.
• 9:00
  SPEAKER_01: We needed something better than that.
• 9:02
  SPEAKER_01: Yeah.
• 9:02
  SPEAKER_04: Um so what is an instrument X as a reminder to folks?
• 9:06
  SPEAKER_04: Um, that's one where the company, the issuer, can elect how they want to settle the instrument.
• 9:10
  SPEAKER_04: So settle it in all in shares, all in cash, or in kind of a combination of the two.
• 9:16
  SPEAKER_04: So so under the new guidance upon conversion, even if the company elects to cash settle the entire instrument, we're gonna follow conversion accounting.
• 9:26
  SPEAKER_04: So that means the amount of cash that we pay in excess of the carrying amount of the instrument, to Brett's point, we're gonna put that as a reduction of equity.
• 9:36
  SPEAKER_01: All right.
• 9:36
  SPEAKER_01: So I know as you said, that's a big change.
• 9:39
  SPEAKER_01: And I also know that as I think Brett alluded to, people are struggling with this.
• 9:43
  SPEAKER_01: And so one of the things I know that's being talked about right now is induced conversion.
• 9:47
  SPEAKER_01: That's something that EITF is talking about.
• 9:49
  SPEAKER_01: But what are we exactly talking about there?
• 9:52
  SPEAKER_02: Yeah, so this is our third, our third topic for the day.
• 9:55
  SPEAKER_02: And um, and my message here is that these are complicated and you shouldn't go these alone.
• 10:01
  SPEAKER_02: Um the guidance talks about situations where a company will make an offer to an investor to incent them to convert the debt or to settle it early.
• 10:09
  SPEAKER_02: And the accounting question that comes up is whether that should be accounted for as an extinguishment or whether it should be accounted for as an induced conversion.
• 10:18
  SPEAKER_02: And there's a big difference in the accounting.
• 10:20
  SPEAKER_02: Uh, extinguishment accounting is not conversion accounting.
• 10:23
  SPEAKER_02: So PL is recorded for the difference between the fair value of consideration paid to the investor, including shares issued, and the carrying amount of the debt.
• 10:32
  SPEAKER_02: Whereas in induced conversion accounting involves recording PL only for the amount related to the inducement.
• 10:39
  SPEAKER_02: So think of the fair value of the consideration paid in excess of what the terms of the original convertible debt provided.
• 10:47
  SPEAKER_04: Yeah, and and I think what the fundamental issue here is so induced conversion guidance has been around for a while now.
• 10:54
  SPEAKER_04: And it wasn't written with some of the modern convertible debt agreements in mind.
• 11:00
  SPEAKER_04: It was, you know, the ones like I talked about earlier that give the issuer flexibility how to settle it.
• 11:04
  SPEAKER_04: They were, it was really written with the idea that if you're gonna convert, the only thing you do is issue shares.
• 11:11
  SPEAKER_04: So now that we change the accounting for conversions, the FASBI is now looking at, well, if we change the accounting for conversions, we probably got to rethink what's considered an induced conversion and how that accounting model works.
• 11:25
  SPEAKER_04: So until the FASB completes that project, the application of this guidance can be complex because we're trying to sometimes fit a little bit of a round peg into a square hole, deal with an instrument guidance never contemplated and applying that guidance.
• 11:40
  SPEAKER_04: So I think Brett's right.
• 11:41
  SPEAKER_04: I would definitely encourage companies to speak with their accountants and their auditors about any plans that they may have to try to induce people to convert instruments early and carefully work through the potential accounting of all the different alternatives that they're considering.
• 11:55
  SPEAKER_01: Yeah, because it sounds like there could be a large difference in the outcome depending on you know which of these models you're under.
• 12:02
  SPEAKER_01: So you don't want to be caught unaware by that.
• 12:05
  SPEAKER_01: So let's go on then, because another favorite that I remember from past podcasts are down rounds and convertible preferred securities.
• 12:15
  SPEAKER_01: And so let's start with what those are in particular.
• 12:18
  SPEAKER_01: I think the down rounds uh we always need to remind people, and then let's talk about what to keep in mind.
• 12:23
  SPEAKER_02: Pretty soon here we're gonna have you lead the discussion about down rounds.
• 12:28
  SPEAKER_01: I'm definitely not right.
• 12:29
  SPEAKER_01: Some topics, I'm but this one, I don't know.
• 12:32
  SPEAKER_01: It does not resonate with me.
• 12:33
  SPEAKER_02: So my reminder with down rounds is to keep permanent equity and mezzanine equity separate.
• 12:38
  SPEAKER_02: And that'll make sense as we go through this.
• 12:40
  SPEAKER_02: But think of down rounds, they're just provisions that are found in convertible instruments uh as well as warrants.
• 12:46
  SPEAKER_02: And they're price protection provisions.
• 12:49
  SPEAKER_02: So it requires a reduction in the instrument's strike price as a result of an at-market issuance of shares below the instrument's original strike price, or as a result of the issuance of another equity link instrument at a lower strike price.
• 13:02
  SPEAKER_02: So it's a way to give the investor protection if other instruments are issued at lower prices.
• 13:10
  SPEAKER_02: There's an exception in the guidance where if a feature meets the definition of a downround, it does not cause the instrument to not be considered indexed to the company's own stock.
• 13:20
  SPEAKER_02: So it may be.
• 13:54
  SPEAKER_04: I don't know if it's true, but it's a really good response.
• 13:56
  SPEAKER_01: Maybe now I'll actually remember what it is.
• 13:58
  SPEAKER_01: So so what else should we be thinking about here?
• 14:01
  SPEAKER_04: Okay, so so like so to where the guidance is clear, and again, this is part of the new guidance, is when the down round actually gets triggered, when it happens and then resets down, that's gonna require some accounting for these convertible preferreds.
• 14:14
  SPEAKER_04: And what's clear is we're gonna charge retained earnings for the you know, the value of the effect of that down round.
• 14:21
  SPEAKER_04: Where it's a bit unclear is how to think about that guidance in combinations with the SEC's guidance on mezzanine classified preferred stock.
• 14:31
  SPEAKER_04: So under the SEC's guidance, if you have preferred securities that are redeemable outside of the control of the company or the issuer, we classify those as mezzanine.
• 14:40
  SPEAKER_04: Sometimes we call that temporary equity.
• 14:42
  SPEAKER_04: So it's it's sort of sits between liabilities and stockholders' equity.
• 14:47
  SPEAKER_04: And for mezzanine securities, they may require us to accrete the balance of that security up to the amount it could be redeemed for.
• 14:56
  SPEAKER_04: So the question that came up for the interaction with the guidance is if we're gonna debit retained earnings, what do we credit?
• 15:03
  SPEAKER_04: So we understand that the SEC staff have stated that if you're gonna recognize a down round feature on mezzanine classified preferred stock, the debit goes to retained earnings and the credit should go to additional paid in capital within permanent equity.
• 15:18
  SPEAKER_04: It doesn't go to the carrying value of the preferred security.
• 15:23
  SPEAKER_04: And they would actually object if you wanted to record that down round as an adjustment to the amount reported in mezzanine.
• 15:31
  SPEAKER_04: So since we've done that, you know, we debit retained earnings, credit additional paid in capital.
• 15:37
  SPEAKER_04: Any subsequent accretion or accounting that we do for the preferred security is going to be unaffected by the recording of the down round because we didn't adjust the balance of the down round, we put it into APIC.
• 15:50
  SPEAKER_02: That's why I said keep permanent equity separate from mezzanine equity as you're going through all of this.
• 15:55
  SPEAKER_04: Yeah, it's a little bit of an interesting concept, but it is arguably what you know a plain read of the literature says to put it into APIC, but it's a little interesting because we're creating a permanent equity balance based upon something that happened to a mezzanine level security.
• 16:11
  SPEAKER_00: Right.
• 16:11
  SPEAKER_04: It could get further complicated because if you go and extinguish that security, we have an amount sending not only in mezzanine, but also in permanent equity.
• 16:21
  SPEAKER_04: And so while we won't necessarily consider the amount in permanent equity when we do an accretion, we do think about that amount when doing extinguishments because we've got to remove that because it no longer.
• 16:34
  SPEAKER_01: Yeah, otherwise there'd have to be.
• 16:36
  SPEAKER_01: Yeah.
• 16:37
  SPEAKER_01: So I I know we're just hitting the highlights here, but I have to ask this question.
• 16:42
  SPEAKER_01: Why, why, why this model?
• 16:44
  SPEAKER_01: And if you can s at least sort of simply explain that, like it just intuitively doesn't seem like this is the way that these would be accounted for.
• 16:54
  SPEAKER_04: So the reason is when you when you read the guidance itself, like what's in what's in gap, it says you debit retained earnings in credit APIC, is is sort of what it says.
• 17:04
  SPEAKER_04: Uh and so the question that I think the SEC had to think about was, well, how do I fit that with my guidance?
• 17:10
  SPEAKER_00: Right.
• 17:11
  SPEAKER_04: And I think their answer was well, uh, it seems to tell me what to do.
• 17:16
  SPEAKER_04: It seems to tell me to debit retained earnings and credit additional paid in capital.
• 17:20
  SPEAKER_04: So, you know, there's nothing really there that would indicate that you can adjust the carrying value of the preferred.
• 17:28
  SPEAKER_04: So I think they were sort of backed into an answer because of the way it was written.
• 17:33
  SPEAKER_04: Now, admittedly, when it was written, it wasn't written thinking about mezzanine classified securities because that's an SEC concept, not a you know, kind of FASB concept, if you will.
• 17:44
  SPEAKER_04: So that's why I think the literature was written to talk about the credit goes to APEC, and that when we realize we'll hold not all equity instruments are reported in permanent equity, that's what created this sort of thing.
• 17:56
  SPEAKER_01: Yeah, because on the surface, it's like, well, there's really, I mean, there is an impact, but it was just net in the same, you know, financial statement line item basically all in equity.
• 18:05
  SPEAKER_01: But to your point, oh, well, if you have this other classification of securities, would we again this is asking you to speculate, but would we think at some point this this could be looked at further?
• 18:16
  SPEAKER_01: We think like this is it, and you know, this is just how you do this accounting.
• 18:21
  SPEAKER_04: I mean, it's certainly it's certainly possible.
• 18:24
  SPEAKER_04: I mean, there's this isn't the only aspect where the new guidance doesn't line up perfectly with the SEC's guidance on mezzanine.
• 18:31
  SPEAKER_04: So it's certainly possible that if this is a recurring problem um, you know, with with the guidance and that the SEC might look at amending their guidance or or thinking about changing that guidance, or similarly have the FASB kind of think about doing something.
• 18:47
  SPEAKER_04: Um, but you know, the guidance is all relatively new.
• 18:50
  SPEAKER_04: Um, the reason we wanted to add it as a reminder today, it goes back to what Brett said earlier.
• 18:55
  SPEAKER_04: We're actually now starting to see these things happen, like down rounds or conversions or things happen now under this new guidance because it's been out for a while and and and so now we're starting to see this.
• 19:08
  SPEAKER_01: Right.
• 19:08
  SPEAKER_01: Well, I haven't stuck to my own mandate to keep this tight, so we can move on from this, but definitely an interesting topic.
• 19:14
  SPEAKER_01: And you know, one I think we we'll have to continue talking about.
• 19:18
  SPEAKER_01: But with that said, then sticking with convertible preferreds, we mentioned earlier a favorite topic of everyone, which is bifurcation under the derivatives guidance.
• 19:28
  SPEAKER_01: And at least I think for the three of us, it actually is probably a favorite topic.
• 19:32
  SPEAKER_01: So, what what else would we like to share about that?
• 19:35
  SPEAKER_02: Yeah, our our final reminder for today is that the analysis of the conversion features and whether they should be bifurcated from preferred instruments can be very judgmental.
• 19:44
  SPEAKER_02: So remember, under the derivatives guidance, it tells us that if you have an embedded derivative in a host instrument, so a conversion option that's embedded in a debt or preferred stock instrument.
• 19:56
  SPEAKER_02: If the conversion option meets the definition of a derivative and does not qualify for the own equity scope exception and is not clearly and closely related to the host instrument, then it must be separately accounted for.
• 20:10
  SPEAKER_02: So there's a lot of complicated guidance associated with each of those steps.
• 20:13
  SPEAKER_02: And I know we've covered some of those in prior podcasts, but here I want to talk about that last piece and talking about that host instrument and how to determine the economic nature of the host instrument for preferred securities.
• 20:27
  SPEAKER_02: Because if the host instrument itself is considered an equity host, then the embedded conversion option would be considered clearly and closely related, and a result as a result would not be bifurcated.
• 20:39
  SPEAKER_02: But if the economic nature of the host instrument is a debt instrument, then that embedded conversion option may not be clearly and closely related and therefore would be bifurcated.
• 20:50
  SPEAKER_02: So determining the nature of that host instrument is an important part of the analysis.
• 20:54
  SPEAKER_02: And that analysis can be very judgmental.
• 20:56
  SPEAKER_02: So we need to think about whether that preferred security is more debt-like or more equity-like.
• 21:02
  SPEAKER_02: And the first thing to know in making this determination is that we think about the entire preferred instrument and all of its features.
• 21:08
  SPEAKER_02: So that sounds a little circular because I'm trying to determine whether that equity conversion option is clearly and closely related to a convertible preferred.
• 21:18
  SPEAKER_02: And the fact that this instrument is convertible in the first place is an indicator that the instrument is an equity host.
• 21:25
  SPEAKER_01: Yeah, so like I practically need to draw a diagram, but it clearly sounds circular.
• 21:30
  SPEAKER_01: But that is very clear that that's what the guidance says.
• 21:33
  SPEAKER_04: Yeah, the guide, the guidance is crystal clear.
• 21:35
  SPEAKER_04: That was clarified uh uh a number of years ago.
• 21:38
  SPEAKER_04: So where a lot of the judgment comes in on these convertible preferred instruments is how to weigh the impact of the conversion option, like that Brett said, is is clearly equity-like with other redemptions or other provisions that are very typical in convertible preferred stock arrangements that, like we said earlier, are designed to provide the investor with downside protection and a minimum fixed return, because that's debt-like, not equity-like.
• 22:05
  SPEAKER_04: So, what are what are the things that people think about?
• 22:07
  SPEAKER_04: You know, you think about how in the money or out of the money is the conversion option at inception.
• 22:13
  SPEAKER_04: You should consider what what are the expectations and motivations of the investors?
• 22:18
  SPEAKER_04: Does the instrument provide like a high minimum level of return?
• 22:22
  SPEAKER_04: Or instead, is the expected exit strategy through through conversion?
• 22:27
  SPEAKER_04: And you know, this this analysis requires like us accountants to really get into the economics of these instruments, understand the business motivations on why you know certain provisions are included in the instruments.
• 22:39
  SPEAKER_04: Um, so again, if a if a company is considering a convertible preferred stock issuance, it's a really good idea to get the accountants involved early and consider all the ramifications of different features while the instrument is being structured and negotiated with investors.
• 22:53
  SPEAKER_01: All right.
• 22:54
  SPEAKER_01: That might summarize our whole podcast there, Chip, that last sentence.
• 22:58
  SPEAKER_01: And definitely, I think if nothing else, as far as listeners have taken nothing else away from this, it's definitely a complex area and one where you know judgments are going to have impact on financial reporting.
• 23:09
  SPEAKER_01: So phoning a friend never hurts.
• 23:12
  SPEAKER_01: I'll also put in a pitch that next week we're going to talk a little bit more about convertible instruments and impact on EPS.
• 23:17
  SPEAKER_01: So definitely, if you're dealing with these instruments, you don't want to miss that.
• 23:22
  SPEAKER_01: But before we wrap up, Brett, if people are listening and so intrigued they have to run to the books, where where should they go?
• 23:29
  SPEAKER_02: I would I would run, not walk to chapter six of our financing guide for a broad discussion.
• 23:35
  SPEAKER_02: And then there's a chapter in our derivative guide, chapter three, that deals with derivative scope exceptions and including those that we were talking about today.
• 23:42
  SPEAKER_01: All right.
• 23:43
  SPEAKER_01: Well, excellent gentlemen.
• 23:44
  SPEAKER_01: It's always so nice to see you, and thanks so much for joining me today.
• 23:48
  SPEAKER_02: Thanks.
• 23:49
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  SPEAKER_01: From Thought Leadership at PwC, I'm Heather Horn.
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