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Reduced Amortization Period for Callable Debt Securities Proposed

The Financial Accounting Standards Board (“FASB”) wants to reduce the amortization period for premium paid for callable debt securities when purchased above market value. In Proposed Accounting Standards Update (“ASU”) No. 2016-340, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, the FASB proposes the premium amortization to be more aligned with the market’s expectations for the securities. The amortization period would end on the earliest call date, as opposed to the instrument’s maturity date.

Due to a tax incentive allowing municipal bond issuers to sell 30-year bonds with above-market coupons and 10-year call provisions, municipal security investors are likely to be impacted by the proposed amendments.

Comments on Proposed ASU No. 2016-340 are due Monday, November 28. After reviewing all submitted comments and deciding whether to finalize the amendments and add them to U.S. GAAP, the FASB will decide on an effective date.


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