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Last week the Financial Accounting Standards Board (FASB) proposed an accounting standard update that would shorten the amortization period for “callable” debt securities purchased at a premium.
The proposal would require premiums to be amortized at the earliest call date by all entities that purchase callable debt securities at a premium. Today, entities amortize the premium as an adjustment of yield over the contractual life of the instrument. This results in large loss in earnings if the security is called. The accounting for securities purchased at a discount would not change.
This update will help more closely align the amortization period of premiums to the expectations incorporated into the market pricing of the underlying securities.
If approved, the amendments would require entities to use a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.
Comments on the proposed standard are due Nov. 28, 2016. Meanwhile, for more information on how this proposed standard may affect your organization, contact our accounting and assurance advisors.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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