FASB requests public comments on proposal to improve accounting for debt exchanges

FASB has published a proposed Accounting Standards Update (ASU) that would provide accounting guidance for debt exchange transactions involving multiple creditors. The proposed ASU is based on a recommendation of the Emerging Issues Task Force (EITF).  

Under current GAAP, when an entity modifies an existing debt instrument or exchanges debt instruments, it is required to determine whether the transaction should be accounted for as (1) a modification of the existing debt obligation or (2) the issuance of a new debt obligation and an extinguishment of the existing debt obligation (with certain exceptions). 

The proposed ASU would specify that an exchange of debt instruments that meets certain requirements should be accounted for by the debtor as the issuance of a new debt obligation and an extinguishment of the existing debt obligation. The Board expects this would improve the decision usefulness of financial reporting information provided to investors by requiring that economically similar exchanges of debt instruments be accounted for similarly. It also would reduce diversity in practice in accounting for such debt instrument exchanges. 

Stakeholders are encouraged to review and provide comments on the proposed ASU by May 30, 2025.