FASB Issues Exposure Draft That Expands Disclosure Requirements for Guarantees

Norwalk, CT, May 22, 2002—In an effort to improve disclosures about loan guarantees, the Financial Accounting Standards Board (FASB) has issued an Exposure Draft of a proposed Interpretation, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Exposure Draft is available on the FASB’s website at or may be obtained by contacting the FASB Order Department at 800-748-0659. The comment period concludes on June 21, 2002.

The proposed Interpretation would clarify and expand on existing disclosure requirements for guarantees, including loan guarantees. It also would require that at the time a company issues a guarantee, the company must recognize a liability for the fair value, or market value, of its obligations under that guarantee. By improving its disclosures and accounting, a company provides a more representationally faithful picture of its financial position and the risk it has assumed.

The Interpretation does not address the subsequent measurement of the guarantor’s recognized liability over the term of the guarantee. It also would incorporate, without change, the guidance in FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others, which is being superseded.

This guidance would not apply to guarantee contracts issued by insurance companies, a lessee’s residual value guarantee embedded in a capital lease, contingent rents and price rebates. The provisions related to recognizing a liability at inception for the fair value of the guarantor’s obligations would not apply to product warranties or to guarantees accounted for as derivatives.

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