FASB proposes shortening amortization period for certain debt securities

By Ken Tysiac

FASB proposed an accounting standard Thursday that would shorten the amortization period for callable debt securities purchased at a premium.

The proposal would require the premium to be amortized to the earliest call date. The proposal would not require an accounting change for securities purchased at a discount; the discount would continue to be amortized to maturity.

The approach has been proposed to more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. The proposal would more closely align interest income recorded on bonds at a premium or a discount with the economics of the underlying instrument.

Under the proposal, an entity would apply the proposed amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. An entity would provide disclosures about a change in accounting principle in the period of adoption.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

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