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Purpose The purpose of this study is to analyze through actual cases how a company’s accounting choices related to the right to convert refixing convertible bonds subsequently affect its financial statements. Methodology Among companies that issued convertible bonds with similar conditions at the same time, the entity classifies convertible bonds into derivative liabilities, capital, and derivative liabilities, respectively, subsequently reclassifies them into capital to confirm from a practical point of view how the accounting treatment of convertible bonds affects financial statements. In particular, considering that the refixing clause is linked to the stock price of the issuing companies, we consider whether the stock price movement was similar when selecting the sample companies to show that it is not an unusual case that appears only in extreme samples. Findings If the conversion right is classified as equity, changes in the share price and subsequent accounting for the conversion right do not affect the financial statements, but if it is classified as a liability, it can have a material impact on the statement of comprehensive income, and the impact increases with the size of the convertible bond issued and the change in share price. We also found that the accounting choice for the conversion right can be changed at the discretion of the companies, but it is confirmed that related disclosures is very insufficient. Implications The case of this study confirm that accounting for items that are not clearly presented in K－IFRS can cause confusion in the capital market if the accounting treatment is not clearly defined by the relevant authorities. It also suggests that political efforts should be made to ensure that the IASB’s discussion process for revising IAS 32 takes into account the situation in Korea.
Baek et al. (Tue,) studied this question.