United States

Proposed premium amortization on purchased callable debt securities


Under current U.S. generally accepted accounting principles (GAAP), entities generally amortize the premium on purchased callable debt securities as an adjustment of yield over the contractual life of the instrument. Stakeholders have raised concerns that current GAAP excludes consideration of early repayment of principal on callable debt securities even if the holder is certain that the call will be exercised.

Stakeholders also have noted that generally, in the United States, callable debt securities are quoted, priced and traded assuming a model that incorporates consideration of calls. Therefore, the Financial Accounting Standards Board recently issued a proposed Accounting Standards Update (ASU), Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, in which it proposes to shorten the amortization period for callable debt securities purchased at a premium. Specifically, the proposed ASU would require the premium to be amortized to the earliest call date. For securities purchased at a discount, the discount would continue to be amortized to maturity.

The proposed ASU is available for comment until November 28, 2016.