FASB seeks public input on changes to debt exchange accounting

GlobalData

Thu, May 1, 2025, 9:57 AM 2 min read

The Financial Accounting Standards Board (FASB) is requesting public feedback on a proposed Accounting Standards Update (ASU) that would provide specific guidance on accounting for debt exchange transactions involving multiple creditors.

The proposal, based on a recommendation by the Emerging Issues Task Force (EITF), is open for stakeholder review and comment until 30 May.

Under the current generally accepted accounting principles, entities are required to determine if a modified or exchanged debt instrument should be treated as a modification of the existing obligation or as the issuance of a new one, with the old obligation extinguished.

The proposed ASU clarifies that certain debt instrument exchanges should be recognised as the issuance of a new debt obligation and the extinguishment of the existing one.

The FASB believes this update would enhance the decision-usefulness of financial reporting by ensuring economically similar transactions are accounted for in a consistent manner.

It also aims to reduce the varied practices in accounting for such exchanges.

Stakeholders have raised issues with the current approach, suggesting it does not accurately reflect the economic reality of certain exchanges, especially when the issuance of new debt and repayment of existing debt are independent events.

Moreover, the current requirement for a quantitative analysis of cash flow changes has been deemed complex and costly.

The Board said proposed amendments would simplify this by specifying conditions under which debt exchanges should be accounted for as new issuances and extinguishments.

In March 2025, the US Securities and Exchange Commission (SEC) approved the 2025 taxonomies for financial reporting as released by the FASB.

These include the GAAP Financial Reporting Taxonomy, the SEC Reporting Taxonomy, and the GAAP Employee Benefit Plan Taxonomy.

"FASB seeks public input on changes to debt exchange accounting " was originally created and published by The Accountant, a GlobalData owned brand.

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