AICPA Groups Comment on GASB’s Proposed Guidance on Certain Debt Extinguishments 

Published November 21, 2016

The American Institute of CPAs’ (AICPA) State and Local Government Expert Panel (SLGEP) and Private Companies Practice Section (PCPS) Technical Issues Committee (TIC) have submitted comment letters on the Governmental Accounting Standards Board (GASB) Exposure Draft (ED), Certain Debt Extinguishment Issues.

The objective of the proposed Statement, GASB wrote in the summary of the ED, “is to improve consistency in accounting and financial reporting for transactions in which only existing resources – resources other than the proceeds of refunding debt – are placed in a trust for the sole purpose of extinguishing debt.  This proposed Statement also would improve accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to the financial statements for debt that is defeased in substance.”

The SLGEP wrote in its October 24 letter that it supports the efforts to improve consistency for debt defeasance transactions.  However, it questioned the ED’s proposed qualification for defeasance of a transaction that allows substitution of monetary assets that are not essentially risk‐free.  The SLGEP believes such transactions would not qualify for defeasance accounting and asked the Board to reconsider its position on the matter.

Similar to the SLGEP, TIC expressed support for the proposed amendments believing they increase consistency in accounting and financial reporting for debt extinguishments by establishing uniform guidance for derecognizing debt that is defeased in substance.  However, TIC did point out some potential inconsistencies in its October 28 letter between the criteria for defeasance and certain proposed disclosures related to the substitution of assets.  TIC suggested that the disclosures would not be relevant.




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