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The end
is in FASB's sights: new FASB statements clarify accounting
practices for debt extinguishment, severance costs,
and pension disclosure |
In Apri1 2002, the FASB issued a statement designed to provide
more consistent and credible accounting for the extinguishment
of debt, certain capital leases, and other items. |
Statement
of Financial Accounting Standards (SFAS) No. 145 (Rescission
of FASB Statements Nos.
4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections) calls for all entities,
including healthcare organizations, to recognize fewer extinguishments
of debt transactions as extraordinary and recognize more consistently
modified capital leases as sale-leaseback contracts. Healthcare
financial managers should recognize that these new provisions
could impair certain financial ratios, causing violations
of certain loan covenants, which could require obtaining waivers
or modifications from their bankers or other lenders. Previously,
SFAS No. 4 (Reporting Gains and Losses from Extinguishment
of Debt) and SFAS No. 64 (Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements) required that all gains
and losses from extinguishments of debt be classified as
extraordinary gains and losses. In a recent four-year period,
the FASB found that 11 percent of companies reported extraordinary
items, and more than 90 percent of those reports related
to debt extinguishments (Accounting Trends and Techniques--2001,
New York: AICPA)...
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