At the end of August, the FASB issued an exposure draft of a Staff Position on accounting for convertibles - a particular model of convertible called Instrument C.

Those convertibles barely nick a firm's earnings per share. "But of course!" you say, "they're convertibles! They're supposed to be lower rate debt!" Yet inwardly, they contain the same kind of financing cost as much higher-coupon straight debt. You just don't see it. But of course - they're convertibles.

Convertible accounting has never accounted for much ever since APB No. 14 was issued in 1969. And these particular instruments take the gimmickry contained in convertible accounting to a new level.

The FASB has taken a bold swipe at fixing convertible accounting wih this Staff Position. If passed, it'll account for the Instrument C financing costs much more accurately than does current convertible accounting. I've prepared an outline of the proposal - on the parts of most interest to analysts - as well as an analysis of recent EITF consensuses. You can see more about the proposal in the report if you sign up for a two-month trial subscription. As always, this offer is restricted to institutional investors only, with inclusion in the BigDough investor database as a litmus test for determining who are "institutional investors."