United States

Premium amortization on purchased callable debt securities


Under current U.S. generally accepted accounting principles (GAAP), entities generally amortize any premium on callable debt securities as an adjustment of yield over the contractual life of the instrument. Stakeholders have raised concerns with current GAAP in that a loss is recognized for the unamortized premium when callable securities are called prior to their contractual maturity dates.

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 Accounting Standards Update (ASU) 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, in which it shortened the amortization period for certain callable debt securities purchased at a premium. Specifically, the ASU requires the premium to be amortized to the earliest call date. For securities purchased at a discount, the discount continues to be amortized to maturity.

For public business entities, the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.