March 12, 1992
TO: ACCOUNTING/TREASURERS COMMITTEE NO. 13-92
INDEPENDENT ACCOUNTANTS ADVISORY GROUP
RE: AICPA STATEMENT OF POSITION ON HIGH-YIELD DEBT SECURITIES
__________________________________________________________
Enclosed for your review is a copy of the AICPA's Proposed
Statement of Position (SOP): Financial Accounting and Reporting
for High-Yield Debt Securities by Investment Companies. The
proposal recommends:
(1) Using the effective-interest method to report
interest income on payment-in-kind (PIK) bonds and
step bonds
(2) Writing off interest receivable on defaulted high-
yield debt securities in accordance with FASB No.
5, Accounting for Contingencies, and allocating the
write-off between income, for the portion that had
been recognized as income, and the cost of the
related investment for the portion purchased
(3) Reporting capital infusions in support of high-
yield debt securities as additions to cost;
reporting other expenditures, excluding workout
expenditures, as additions to cost only to the
extent that they increase legally enforceable
claims against the issuer of the securities; and
reporting workout expenditures as operating
expenses
(4) Procedures to be considered by auditors for
reviewing the valuations of high-yield debt
securities to be reported in financial statements
Paragraphs 43 through 49 of the SOP "Accounting for
Expenditures in Support of Defaulted Debt Securities".
Commentators are asked to state specifically their views on the
conclusion in paragraph 49, which is summarized in item (3)
above.
Comments are due to the AICPA by May 4, 1992. Please
provide the Institute with any comments you wish to have included
in the Institute's response by April 16, 1992.
Kathleen C. Joaquin
Director -Operations/
Fund Accounting
Enclosure