Academic journal article Journal of Accountancy

FASB Issues Ed on Prepayment Risk, DM on Consolidations

Academic journal article Journal of Accountancy

FASB Issues Ed on Prepayment Risk, DM on Consolidations

Article excerpt

The Financial Accounting Standards Board issued an exposure draft on accounting for investments with prepayment risk, with a comment period that ends December 31, 1991.

The ED applies to accounting by investors or creditors for loans, receivables or other debt securities subject to prepayment, including mortgage loans and callable corporate debt. It proposes anticipation of prepayments whenever prepayments are probable; the timing and amount of prepayments can be estimated; and the impact on the effective yield of anticipating prepayments would be significant.

The proposal also would require the effective yield to be recalculated and the carrying amount of the investment adjusted if actual cash flows and estimates of future cash flows change as a result of prepayments. That adjustment would be required to be recognized currently in income.

If adopted as a final statement, the proposal would be effective for transactions entered into in fiscal years beginning after December 15, 1992.

Consolidation DM. The FASB also issued a discussion memorandum on consolidation policy and procedures, with public comment ending July 15, 1992. …

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