Project Pages

Debt Refundings & Extinguishments

Research Description:The initial objectives of this pre-agenda research activity are (1) to evaluate the effectiveness of Statements No. 7, Advance Refundings Resulting in Defeasance of Debt, and No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities, and relevant sections of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, and (2) to consider the need for revisions to existing standards.

Status: Added to Research Agenda: May 2014

Debt Refundings & Extinguishments—PROJECT PLAN


Major Research Issues: The major issue to be studied is whether Statements 7 and 23 provide sufficient guidance in reporting refundings and advance refundings resulting in defeasance of debt. As part of this issue, the following elements that have been raised through the technical inquiry process would be considered:

  • How decision-useful has information about refundings been subsequent to the implementation of these pronouncements?
  • What are the distinguishing indicators of a refunding versus a change in a bond’s mode—the basis on which a bond’s variable payment is calculated, such as an auction or a short-term index? Does restructured debt qualify as an advanced refunding?
  • If the new debt issued is more than the amount needed to refund the old debt, how should the disclosure requirements of paragraph 11 of Statement 7 apply, and how should the cash flow difference in economic gain or loss be calculated?
  • For purposes of the recognition period, how do call options affect what is considered the remaining life of the refunded bonds?
Extinguishment of debt will be studied on a broader and more fundamental level. Research on what constitutes an extinguishment of debt would clarify the differences in treatments between ordinary extinguishments of debt and extinguishments involving the issuance of refunding bonds.
  • What constitutes an extinguishment of debt?
  • What information should be reported or disclosed when debt is extinguished?
  • Should the standards for specific types of debt extinguishments, such as refundings, be consistent with the general standards for debt extinguishment?
  • Does the governmental environment operate in a manner such that the Board’s perspective of substitution of debt still prevails?
Research Work Plan: The research will consist of a literature review, archival research, and surveys and interviews with of financial statement preparers, auditors, and users.

Board Meetings

Research Activities

June–July 2014:

Review relevant literature and guidance of other standards setters; archival research.

August–September 2014:

Develop and pretest preparer and auditor interview protocol and background materials; conclude literature review; continue archival research.

October 2014:

Conduct preparer and auditor surveys; conclude archival research; begin to develop user survey instrument.

November–December 2014:

Pretest and administer user survey; begin to analyze results.

January 2015:

Conclude analysis of results of research and draft research memorandum.

February 2015:

Discuss research memorandum with Board.