FASB on April 30 published a proposed Accounting Standards Update (ASU) that would give accounting guidance for debt exchange transactions that involve multiple creditors, a release from the Board says.

The proposed ASU is based on a recommendation of the Emerging Issues Task Force (EITF). The deadline for comments on the proposed ASU is May 30.

Based on current generally accepted accounting principles (GAAP), when an entity modifies an existing debt instrument or exchanges debt instruments, it is required to determine if the transaction should be accounted for as a modification of the existing debt obligation or the issuance of a new debt obligation and an extinguishment of the existing debt obligation (with certain exceptions).

This ASU will 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 offered to investors by requiring that economically similar exchanges of debt instruments be accounted for similarly. It also would limit the diversity in practice in accounting for such debt instrument exchanges.