New rules for accounting for the amortization of premiums on redeemable debt securities


The FASB on Thursday made targeted changes to the rules governing the accounting for amortization of premiums for purchased redeemable debt securities.

The changes are described in the update of accounting standards n ° 2017-08, Receivables – Non-refundable charges and other costs (sub-topic 310-20): Amortization of the premium on purchased refundable debt securities.

Under current GAAP, a premium is generally amortized until the maturity date when a redeemable debt security is purchased at a premium, even if the holder is certain that the call will be exercised. Consequently, when a call is made on a redeemable debt security held at a premium, the unamortized premium is recognized in loss of income.

Stakeholders said this recognition results in the recognition of too much interest income before a borrower calls the debt security, followed by the recognition of a loss on the call date.

To address these concerns, the new standard shortens the premium amortization period until the first call date in order to more closely align interest income recorded on bonds held at a premium or discount with the economics of the underlying instrument.

The standard comes into effect for public business entities for fiscal years and interim periods within those fiscal years, starting after December 15, 2018. For all other entities, the changes are effective for fiscal years beginning after December 15, 2019 and the intervening periods. during fiscal years beginning after December 15, 2020.

Early adoption is allowed, including adoption in an interim period. If an entity adopts early during an interim period, any adjustment should be reflected at the beginning of the fiscal year that includes that interim period.

Ken tysiac ([email protected]) is a JofA Managing Editor.

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