FASB Releases Exposure Draft on Guarantees

On May 22, 2002, the Financial Accounting Standards Board (FASB) released an exposure draft (ED) of a proposed Interpretation entitled, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others."

The accounting and disclosure requirements for guarantees were reconsidered in connection with FASB's post-Enron project on accounting for special purpose entities (SPEs). Enron had considerable off-balance sheet debt in the form of guaranteed loans for its affiliated partnerships. Some have argued that Enron's guarantees were not adequately disclosed because the existing accounting rules were not clear.

The scope of the project was difficult to nail down. As it stands now, FASB's ED covers some, but not all, letters of credit, indemnification agreements, and indirect guarantees. For example, it covers financial standby letters of credit, (which are irrevocable guarantees to pay when an event occurs, such as a significant deterioration of financial condition), but it does not cover commercial letters of credit or product warrantees.

If approved as proposed, the Interpretation would:

  • Clarify and expand on existing disclosure requirements for guarantees, including loan guarantees.
  • Require companies to recognize a liability for the fair value, or market value, of their obligations under a guarantee at the time the guarantee is issued.

The disclosure requirements would be effective for interim or annual periods ending after October 15, 2002. The initial recognition and measurement provisions would need to be applied to all previously issued guarantees in the first fiscal year beginning after September 15, 2002.

The comment period ends June 21, 2002. Download the exposure draft.

-Rosemary Schlank

You may like these other stories...

Cybersecurity is no longer the domain of an organization's IT staff. It's moved to the boardroom, and in a big way. Accountants and financial managers may have been thinking it's just the province of the tech...
Boehner addresses GOP priorities ahead of midterm electionsHouse Speaker John Boehner (R-OH) on Thursday delivered what amounted to closing arguments ahead of the November elections, laying out a list of Republican...
Former DOJ Tax Division head Kathryn Keneally joining DLA Piper in New YorkGlobal law firm DLA Piper announced on Thursday that Kathryn Keneally, the former head of the US Justice Department Tax Division, is joining the firm...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 21
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.