Academic journal article Journal of Accountancy

SAB Issued on Accounting for Extinguishment of Debt

Academic journal article Journal of Accountancy

SAB Issued on Accounting for Extinguishment of Debt

Article excerpt

The Securities and Exchange Commission has released Staff Accounting Bulletin no. 94, which expresses the SEC staff views about when a gain or loss should be recognized on the early extinguishment of debt.

The SEC staff analyzed a number of companies that recognized significant losses on the extinguishment of outstanding debts in periods before their actual extinguishment. SAB no. 94 says existing accounting literature, specifically Accounting Principles Board Opinion no. 26, Early Extinguishment of Debt, and its amendments, including Financial Accounting Standards Board Statement no. 76, Extinguishment of Debt, clearly states losses on early extinguishments have to be recognized in the period of extinguishment, not in the period before the extinguishment.

Recognizing the early extinguishment of debt in the wrong period can be the result of following the wrong authoritative literature. John Glynn, a professional accounting fellow in the SEC's Office of the Chief Accountant, told the journal that many accountants believed FASB Statement no. …

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