If your investment portfolio includes certain callable debt securities held at a premium, take notice! A change is coming to your investment accounting procedures. The FASB issued guidance that requires updates to the amortization parameters for certain callable debt securities purchased at a premium.
Rather than amortize premiums over the life of a callable bond, the amortization period is shortened to the earliest call date. Bonds held at a discount continue to be amortized to maturity.
Some benefits of this amendment include:
- alignment with market pricing,
- consistency in the application of amortization periods,
- matching interest income recorded with the economics of the investments, and
- application of call dates in impairment analyses.
Impact on your Accountant and Auditor:
Ask your investment manager or custodian to provide the earliest call dates of your debt securities to aid you in updating your amortization schedules. Expect your auditor to test your application of this amendment.
Effective Dates and Application:
The amendment is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The amendment should be applied retrospectively with a cumulative adjustment to beginning retained earnings of the period adopted.
Author: Amy Strachan, CPA, Senior Manager (firstname.lastname@example.org)