FIN 45

Guarantor's accounting and disclosure for guarantees

Guarantor's accounting and disclosure for guarantees, including indirect guarantees of indebtedness of others

Issued 2002

FASB Exposure Draft 2002

Summary

Interprets FASB 5, 57 and 107
Accounting (recognition) requirements apply to guarantees issued or modified after 12.31.02
Disclosure requirements apply to financial statements after 12.15.02

Subject to scope exceptions, recognition and disclosure requirements apply to

Accounting recognition required

Record as a liability the "fair value" of guaranty at its inception
Using probability-weighted present value of expected loss
A significant change from prior "SFAS 5 method," which recorded liability only when loss was both probable and estimable
Off-setting debit depends on role of guarantee
FIN 45 does not specify subsequent treatment of this liability whether to mark to market, amortize or release on expiration/settlement

Financial statement disclosures required

Scope exceptions

Excluded from recognition and disclosure:

Excluded from recognition but not disclosure:

Contingent consideration in a business combination (earn-outs)
Guarantees which are SFAS 133 derivatives
Guarantees of functional performance, e g, product warranties;
"maximum exposure" needn't be disclosed
instead, disclose policy and methodology to determine liability; include tabular reconciliation of change for the reporting period
parent guarantee of subsidiary debt

FASB Staff Positions

FSP FIN 45-1 2003
Intellectual property infringement indemnifications
FSP FIN 45-2 2003
Subsequently accounting for a guarantors liability at Fair Value

Interpretive issues

S-K 303(a)(4) refers to FIN 45 to define certain guarantees

Which are one of four types of off-balance sheet arrangements which require heightened MD&A disclosure

See MD&A - Off-balance sheet arrangements

SEC Staff Comment Letters

Cavalier Homes

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