An Examination Of The Reporting And Disclosure Of Early Debt Extinguishments

Abstract

The accounting treatment of early extinguishments of debt has long been a source of problems for the accounting profession. Due to differences between book and market values of debt, early retirements of debt frequently lead to the following paradox: economically good decisions can be reported as accounting losses and, conversely, economically bad decisions can be reports as accounting gains. This study analyzed auditor attitudes toward possible disclosure modifications which could mitigate the negative influences arising from current accounting practice. The results reveal support for the inclusion of cash flow analyses to improve the resulting disclosure for these transactions.