The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving, and complex accounting issues. Expert News & Commentary.
By Denise Lugo
Sept. 23 — The Financial Accounting Standards Board is proposing to shorten the period for which callable debt securities can be spread out in financial statements.
The period for callable debt securities—the ones purchased at a premium—would be shortened to the earliest date the bond is redeemed, FASB said Sept. 22. For securities purchased at a discount, however, there wouldn't be a change. The discount would continue to be amortized to the maturity date.
The proposed revisions—largely affecting banks and insurers, among others—would align the amortization period of premiums and discounts to market price expectations on the underlying securities, FASB said.
Furthermore, the change would remove differences in how companies currently account for such transactions, as well as provide more data to investors and others, FASB said.
Callable debt securities—bonds that can be redeemed prior to maturity—are typically issued by corporate and municipal entities. More than $1 trillion of these bonds were traded in 2015, according to the Securities Industry and Financial Markets Association.
In most cases, market participants price securities to the call date when the security is trading at a premium, and price them to maturity when they’re trading at a discount, FASB said. This is done in anticipation that the borrower will act in its economic best interest.
One FASB board member, Marc Siegel, dissented on the proposal. Among other reasons, Siegel said it fails to provide additional disclosures about interest income on purchased debt securities and loans.
FASB said it’s seeking comments by Nov. 28 on the proposed accounting standards update, Receivables--Nonrefundalbe Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.
To contact the reporter on this story: Denise Lugo at firstname.lastname@example.org
To contact the editor responsible for this story: S. Ali Sartipzadeh at email@example.com
Copyright © 2016 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)