The Financial Accounting Standards Board has released an accounting standards update that changes the treatment of the amortization of premiums for purchased callable debt securities, shortening the amortization period for the premium to the earliest call date.

When a callable debt security is bought at a premium, the premium is usually amortized to the maturity date, even if the holder is sure the call will be exercised. Then when the call is exercised, the unamortized premium is recorded as a loss in earnings. However, FASB has heard concerns from some of its constituents that this accounting treatment means too much interest income ends up being recognized before a borrower calls the debt security, followed by recognition of a loss on the call date. The new standard answers these complaints by shortening the amortization period for the premium to the earliest call date. That way, it will more closely align the interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument.

For public companies, the changes are effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2019, and interim periods within fiscal years beginning after Dec. 15, 2020. Early adoption is allowed, including within an interim period.

FASB, GASB and FAF logos on the wall at headquarters in Norwalk, Connecticut
Courtesy of GASB

More information about the accounting update can be found at

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of, has been covering business and technology for a variety of publications since 1985.