Diversity in practice eliminated on Contingent Put and Call Options in Debt

This exposure draft was issued August 6, 2015 to clarify the process for determining whether or not contingent put and call options must be bifurcated from their debt hosts. GAAP provides specific guidance for assessing whether these options that can accelerate the repayment of principal on a debt instrument meet the definition of clearly and closely related. The four-step decision-making process is documented in ASC 815-15-25-42.

There are two divergent approaches that have developed in current practice – one looks first at whether the event that triggers the ability to exercise the option is indexed only to interest rates or credit risk then follows the four-step decision process while the second approach moves directly into the four-step evaluation process. The changes proposed in this exposure draft would mandate that the assessment of the options be based ONLY on the four-step decision sequence.

The FASB is looking for comment letters from constituents that support the proposed change as well as those that oppose the change specifically related to the following:

  • whether there is agreement on the change,
  • how the change will be implemented,
  • how much time implementation would take and
  • how the change should be disclosed.

For a copy of the exposure draft including a full list of the proposed questions, please go to

The deadline to provide comments is October 5, 2015.