On April 30th, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that would provide accounting guidance for debt exchange transactions with multiple creditors. The proposed ASU is based on a recommendation of the Emerging Issues Task Force (EITF), which aids the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of the FASB Accounting Standards Codification.
Under current generally accepted accounting principles (GAAP), when an entity updates an existing debt instrument or exchanges debt instruments, it is required to determine whether the transaction should be considered a change to the existing debt obligation or the issuance of a new debt obligation and an extinguishment of the existing debt obligation.
The proposed ASU would:
- specify that an exchange of debt instruments that meets certain requirements should be accounted for by the debtor as the issuance of a new debt obligation and an extinguishment of the existing debt obligation
- improve the decision usefulness of financial reporting information provided to investors by requiring that economically similar exchanges of debt instruments be accounted for similarly
- reduce diversity in practice in accounting for such debt instrument exchanges
Stakeholders may review and submit feedback on the proposed ASU through May 30, 2025. Please visit www.fasb.org for instruction on how to provide comments.
Source:
FASB Seeks Public Comment on Proposal to Improve Accounting for Debt Exchanges (fasb.org)
