The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2017-08 to update the amortization period of certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. Entities generally amortize the premiums and discounts on callable debt securities over the contractual life of the instrument under current GAAP. If the call on a callable debt security is exercised under current GAAP, the unamortized premium results in a loss in earnings. The ASU seeks to improve this by more closely aligning the interest income recorded on bonds held at a premium or discount with the economics of the underlying debt instrument. The accounting for callable debt securities held at a discount won't change; these securities will continue to be amortized to maturity.
Entities should apply this ASU amendment on a modified retrospective basis through a direct cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The ASU amendment goes into effect for fiscal years and interim periods within those fiscal years, beginning subsequent to Dec. 15, 2018 for public entities. As for all other entities, the ASU amendment won't be effective until fiscal years beginning after Dec.15, 2019, and interim periods within fiscal years beginning after Dec. 15, 2020. Early adoption is permitted.
For more information, contact your local UHY LLP professional.
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