SAB issued on accounting for extinguishment of debt.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 The destruction or cancellation of a right, a power, a contract, or an estate. Extinguishment is sometimes confused with merger, though there is a clear distinction between them. 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 The Accounting Principles Board (APB) is the former authoritative body of the American Institute of Certified Public Accountants (AICPA). It was created by the American Institute of Certified Public Accountants in 1959 and issued pronouncements on accounting principles until 1973, Opinion no. 26, Early Extinguishment of Debt, and its amendments, including Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). 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 John Glynn of Glynn (1722-1779) was an English lawyer and Member of Parliament. Glynn was born to an ancient family of Cornish gentry. He inherited his father's estate in Glynn, Cornwall upon the deaths of his elder brother and his nephew. , a professional accounting fellow in the SEC's Office of the Chief Accountant, told the journal that many accountants believed FASB Statement FASB Statement A standard set by the Financial Accounting Standards Board regarding a financial accounting and reporting method. Essentially, FASB statements determine the acceptable accounting practices that Certified Public Accountants use in reporting no. 5, Accounting for Contingencies, was the authoritative literature on accounting for losses on debt extinguishments. Statement no. 5 requires recognition of a contingent loss when the loss becomes probable. "The staff indicated that Statement no. 5 did not conflict with the other debt extinguishment literature," said Glynn. "Accountants need to follow the language in Opinion no. 26 and Statement no. 76 and recognize the loss in the period of extinguishment." Tracey Barber, another professional accounting fellow, said Statement no. 76 defines when a liability is considered extinguished ex·tin·guish tr.v. ex·tin·guished, ex·tin·guish·ing, ex·tin·guish·es 1. To put out (a fire, for example); quench. 2. To put an end to (hopes, for example); destroy. See Synonyms at abolish. 3. for accounting purposes and does not provide for extinguishment when the debt issuer has made a unilateral commitment to extinguish Extinguish Retire or pay off debt. it in a subsequent period. "This is not one of the means by which debt is considered extinguished," said Barber. For further information on SAB no. 94 contact Tracey Barber, SEC Office of the Chief Accountant, at (202) 942-4400, or Douglas Tanner, SEC Division of Corporate Finance, at (202) 942-2960. |
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