Appendix B — Glossary of Selected Terms
The following are definitions of selected terms from the ASC master
glossary:
ASC Master Glossary
Active Market
A market in which transactions for the asset or liability
take place with sufficient frequency and volume to provide
pricing information on an ongoing basis.
Affiliate
A party that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under
common control with an entity. See Control.
Agent
A party that acts for and on behalf of another party. For
example, a third-party intermediary is an agent of the
transferor if it acts on behalf of the transferor.
Antidilution
An increase in earnings per share amounts or a decrease in
loss per share amounts.
Auction Rate Notes
Auction rate notes are notes that generally have long-term
nominal maturities and interest rates that reset
periodically through a Dutch auction process, typically
every 7, 28, or 35 days. At an auction, existing holders of
auction rate notes and potential buyers enter a competitive
bidding process through a broker-dealer, specifying the
number of shares (units) to purchase with the lowest
interest rate they are willing to accept. Generally, the
lowest bid rate at which all shares can be sold at the
notes’ par value establishes the interest rate (also known
as the clearing rate) to be applied until the next
auction.
Baby Bonds
See Payment-in-Kind Bonds.
Basic Earnings per Share
The amount of earnings for the period available to each share
of common stock outstanding during the reporting period.
Benchmark Interest Rate
A widely recognized and quoted rate in an active financial
market that is broadly indicative of the overall level of
interest rates attributable to high-credit-quality obligors
in that market. It is a rate that is widely used in a given
financial market as an underlying basis for determining the
interest rates of individual financial instruments and
commonly referenced in interest-rate-related
transactions.
In theory, the benchmark interest rate should be a risk-free
rate (that is, has no risk of default). In some markets,
government borrowing rates may serve as a benchmark. In
other markets, the benchmark interest rate may be an
interbank offered rate.
Beneficial Interests
Rights to receive all or portions of specified cash inflows
received by a trust or other entity, including, but not
limited to, all of the following:
- Senior and subordinated shares of interest, principal, or other cash inflows to be passed-through or paid-through
- Premiums due to guarantors
- Commercial paper obligations
- Residual interests, whether in the form of debt or equity.
Bunny Bonds
See Payment-in-Kind Bonds.
Callable Obligation
An obligation is callable at a given date if the creditor has
the right at that date to demand, or to give notice of its
intention to demand, repayment of the obligation owed to it
by the debtor.
Capitalization Rate
Rate used to determine amount of interest to be capitalized
in an accounting period.
Capitalize
Capitalize is used to indicate that the cost would be
recorded as the cost of an asset. That procedure is often
referred to as deferring a cost, and the resulting asset is
sometimes described as a deferred cost.
Carrying Amount
For a receivable, the face amount increased or decreased by
applicable accrued interest and applicable unamortized
premium, discount, finance charges, or issue costs and also
an allowance for uncollectible amounts and other valuation
accounts.
For a payable, the face amount increased or decreased by
applicable accrued interest and applicable unamortized
premium, discount, finance charges, or issue costs.
Cash
Consistent with common usage, cash includes not only currency
on hand but demand deposits with banks or other financial
institutions. Cash also includes other kinds of accounts
that have the general characteristics of demand deposits in
that the customer may deposit additional funds at any time
and also effectively may withdraw funds at any time without
prior notice or penalty. All charges and credits to those
accounts are cash receipts or payments to both the entity
owning the account and the bank holding it. For example, a
bank’s granting of a loan by crediting the proceeds to a
customer’s demand deposit account is a cash payment by the
bank and a cash receipt of the customer when the entry is
made.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments
that have both of the following characteristics:
- Readily convertible to known amounts of cash
- So near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
Generally, only investments with original maturities of three
months or less qualify under that definition. Original
maturity means original maturity to the entity holding the
investment. For example, both a three-month U.S. Treasury
bill and a three-year U.S. Treasury note purchased three
months from maturity qualify as cash equivalents. However, a
Treasury note purchased three years ago does not become a
cash equivalent when its remaining maturity is three months.
Examples of items commonly considered to be cash equivalents
are Treasury bills, commercial paper, money market funds,
and federal funds sold (for an entity with banking
operations).
Cash Flow Hedge
A hedge of the exposure to variability in the cash flows of a
recognized asset or liability, or of a forecasted
transaction, that is attributable to a particular risk.
Cashless Exercise
See Net Share Settlement.
Collateral
Personal or real property in which a security interest has
been given.
Collateralized Financing Entity
A variable interest entity that holds financial assets,
issues beneficial interests in those financial assets, and
has no more than nominal equity. The beneficial interests
have contractual recourse only to the related assets of the
collateralized financing entity and are classified as
financial liabilities. A collateralized financing entity may
hold nonfinancial assets temporarily as a result of default
by the debtor on the underlying debt instruments held as
assets by the collateralized financing entity or in an
effort to restructure the debt instruments held as assets by
the collateralized financing entity. A collateralized
financing entity also may hold other financial assets and
financial liabilities that are incidental to the operations
of the collateralized financing entity and have carrying
values that approximate fair value (for example, cash,
broker receivables, or broker payables).
Common Stock
A stock that is subordinate to all other stock of the issuer.
Also called common shares.
Conduit Debt Securities
Certain limited-obligation revenue bonds, certificates of
participation, or similar debt instruments issued by a state
or local governmental entity for the express purpose of
providing financing for a specific third party (the conduit
bond obligor) that is not a part of the state or local
government’s financial reporting entity. Although conduit
debt securities bear the name of the governmental entity
that issues them, the governmental entity often has no
obligation for such debt beyond the resources provided by a
lease or loan agreement with the third party on whose behalf
the securities are issued. Further, the conduit bond obligor
is responsible for any future financial reporting
requirements.
Consolidated Financial Statements
The financial statements of a consolidated group of entities
that include a parent and all its subsidiaries presented as
those of a single economic entity.
Consolidated Group
A parent and all its subsidiaries.
Contingency
An existing condition, situation, or set of circumstances
involving uncertainty as to possible gain (gain contingency)
or loss (loss contingency) to an entity that will ultimately
be resolved when one or more future events occur or fail to
occur.
Contingently Convertible Instruments
Contingently convertible instruments are instruments that
have embedded conversion features that are contingently
convertible or exercisable based on either of the
following:
- A market price trigger
- Multiple contingencies if one of the contingencies is a market price trigger and the instrument can be converted or share settled based on meeting the specified market condition.
A market price trigger is a market condition that is based at
least in part on the issuer’s own share price. Examples of
contingently convertible instruments include contingently
convertible debt, contingently convertible preferred stock,
and the instrument described by paragraph 260-10-45-43, all
with embedded market price triggers.
Contract
An agreement between two or more parties that creates
enforceable rights and obligations.
Contract Asset
An entity’s right to consideration in exchange for goods or
services that the entity has transferred to a customer when
that right is conditioned on something other than the
passage of time (for example, the entity’s future
performance).
Contract Liability
An entity’s obligation to transfer goods or services to a
customer for which the entity has received consideration (or
the amount is due) from the customer.
Control
The possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of an
entity through ownership, by contract, or otherwise.
Conversion Rate
The ratio of the number of common shares issuable upon
conversion to a unit of a convertible security. For example,
$100 face value of debt convertible into 5 shares of common
stock would have a conversion ratio of 5:1. Also called
conversion ratio.
Convertible Security
A security that is convertible into another security based on
a conversion rate. For example, convertible preferred stock
that is convertible into common stock on a two-for-one basis
(two shares of common for each share of preferred).
Credit Derivative
A derivative instrument that has both of the following
characteristics:
- One or more of its underlyings are related to any of
the following:
- The credit risk of a specified entity (or a group of entities)
- An index based on the credit risk of a group of entities.
- It exposes the seller to potential loss from credit-risk-related events specified in the contract.
Examples of credit derivatives include, but are not limited
to, credit default swaps, credit spread options, and credit
index products.
Credit Risk
For purposes of a hedged item in a fair value hedge, credit
risk is the risk of changes in the hedged item’s fair value
attributable to both of the following:
- Changes in the obligor’s creditworthiness
- Changes in the spread over the benchmark interest rate with respect to the hedged item’s credit sector at inception of the hedge.
- Default
- Changes in the obligor’s creditworthiness
- Changes in the spread over the contractually specified interest rate or the benchmark interest rate with respect to the related financial asset’s or liability’s credit sector at inception of the hedge.
Currency Risk
The risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in
foreign exchange rates.
Current Assets
Current assets is used to designate cash and other assets or
resources commonly identified as those that are reasonably
expected to be realized in cash or sold or consumed during
the normal operating cycle of the business. See paragraphs
210-10-45-1 through 45-4.
Current Liabilities
Current liabilities is used principally to designate
obligations whose liquidation is reasonably expected to
require the use of existing resources properly classifiable
as current assets, or the creation of other current
liabilities. See paragraphs 210-10-45-5 through 45-12.
Customer
A party that has contracted with an entity to obtain goods or
services that are an output of the entity’s ordinary
activities in exchange for consideration.
Derecognize
Remove previously recognized assets or liabilities from the
statement of financial position.
Derivative Instrument
Paragraphs 815-10-15-83 through 15-139
define the term derivative instrument.
Diluted Earnings per Share
The amount of earnings for the period available to each share
of common stock outstanding during the reporting period and
to each share that would have been outstanding assuming the
issuance of common shares for all dilutive potential common
shares outstanding during the reporting period.
Dilution
A reduction in EPS resulting from the assumption that
convertible securities were converted, that options or
warrants were exercised, or that other shares were issued
upon the satisfaction of certain conditions.
Discount
The difference between the net proceeds, after expense,
received upon issuance of debt and the amount repayable at
its maturity. See Premium.
Discount Rate Adjustment Technique
A present value technique that uses a risk-adjusted discount
rate and contractual, promised, or most likely cash
flows.
Down Round Feature
A feature in a financial instrument that reduces the strike
price of an issued financial instrument if the issuer sells
shares of its stock for an amount less than the currently
stated strike price of the issued financial instrument or
issues an equity-linked financial instrument with a strike
price below the currently stated strike price of the issued
financial instrument.
A down round feature may reduce the strike price of a
financial instrument to the current issuance price, or the
reduction may be limited by a floor or on the basis of a
formula that results in a price that is at a discount to the
original exercise price but above the new issuance price of
the shares, or may reduce the strike price to below the
current issuance price. A standard antidilution provision is
not considered a down round feature.
Earnings per Share
The amount of earnings attributable to each share of common
stock. For convenience, the term is used to refer to either
earnings or loss per share.
Effective Notional Amount
The effective notional amount is the stated notional amount
adjusted for any leverage factor.
Embedded Credit Derivative
An embedded derivative that is also a credit derivative.
Embedded Derivative
Implicit or explicit terms that affect some or all of the
cash flows or the value of other exchanges required by a
contract in a manner similar to a derivative instrument.
Entry Price
The price paid to acquire an asset or received to assume a
liability in an exchange transaction.
Equity Kicker
See Expected Residual Profit.
Equity Restructuring
A nonreciprocal transaction between an entity and its
shareholders that causes the per-share fair value of the
shares underlying an option or similar award to change, such
as a stock dividend, stock split, spinoff, rights offering,
or recapitalization through a large, nonrecurring cash
dividend.
Equity Shares
Equity shares refers only to shares that are accounted for as
equity.
Error in Previously Issued Financial Statements
An error in recognition, measurement, presentation, or
disclosure in financial statements resulting from
mathematical mistakes, mistakes in the application of
generally accepted accounting principles (GAAP), or
oversight or misuse of facts that existed at the time the
financial statements were prepared. A change from an
accounting principle that is not generally accepted to one
that is generally accepted is a correction of an error.
Exchange Market
A market in which closing prices are both readily available
and generally representative of fair value. An example of
such a market is the New York Stock Exchange.
Exchange Rate
The ratio between a unit of one currency and the amount of
another currency for which that unit can be exchanged at a
particular time.
Exercise Contingency
A provision that entitles the entity (or the counterparty) to
exercise an equity-linked financial instrument (or embedded
feature) based on changes in an underlying, including the
occurrence (or nonoccurrence) of a specified event.
Provisions that accelerate the timing of the entity’s (or
the counterparty’s) ability to exercise an instrument and
provisions that extend the length of time that an instrument
is exercisable are examples of exercise contingencies.
Exit Price
The price that would be received to sell an asset or paid to
transfer a liability.
Expected Cash Flow
The probability-weighted average (that is, mean of the
distribution) of possible future cash flows.
Expected Residual Profit
The amount of profit, whether called interest or another
name, such as equity kicker, above a reasonable amount of
interest and fees expected to be earned by a lender.
Face Amount
See Notional Amount.
Fair Value
The price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between
market participants at the measurement date.
Fair Value Hedge
A hedge of the exposure to changes in the fair value of a
recognized asset or liability, or of an unrecognized firm
commitment, that are attributable to a particular risk.
Fed Funds Effective Rate Overnight Index Swap Rate
The fixed rate on a U.S. dollar, constant-notional interest
rate swap that has its variable-rate leg referenced to the
Fed Funds Effective Rate (an overnight rate) with no
additional spread over the Fed Funds effective rate on that
variable-rate leg. That fixed rate is the derived rate that
would result in the swap having a zero fair value at
inception because the present value of fixed cash flows,
based on that rate, equates to the present value of the
variable cash flows.
Financial Asset
Cash, evidence of an ownership interest in an entity, or a
contract that conveys to one entity a right to do either of
the following:
- Receive cash or another financial instrument from a second entity
- Exchange other financial instruments on potentially favorable terms with the second entity.
Financial Instrument
Cash, evidence of an ownership interest in an entity, or a
contract that both:
- Imposes on one entity a contractual obligation
either:
- To deliver cash or another financial instrument to a second entity
- To exchange other financial instruments on potentially unfavorable terms with the second entity.
- Conveys to that second entity a contractual right
either:
- To receive cash or another financial instrument from the first entity
- To exchange other financial instruments on potentially favorable terms with the first entity.
The use of the term financial instrument in this definition
is recursive (because the term financial instrument is
included in it), though it is not circular. The definition
requires a chain of contractual obligations that ends with
the delivery of cash or an ownership interest in an entity.
Any number of obligations to deliver financial instruments
can be links in a chain that qualifies a particular contract
as a financial instrument.
Contractual rights and contractual obligations encompass both
those that are conditioned on the occurrence of a specified
event and those that are not. All contractual rights
(contractual obligations) that are financial instruments
meet the definition of asset (liability) set forth in FASB
Concepts Statement No. 6, Elements of Financial Statements,
although some may not be recognized as assets (liabilities)
in financial statements — that is, they may be
off-balance-sheet — because they fail to meet some other
criterion for recognition.
For some financial instruments, the right is held by or the
obligation is due from (or the obligation is owed to or by)
a group of entities rather than a single entity.
Financial
Liability
A contract that imposes on one entity an
obligation to do either of the following:
- Deliver cash or another financial instrument to a second entity
- Exchange other financial instruments on potentially unfavorable terms with the second entity.
Financial Statements Are
Available to Be Issued
Financial statements are considered
available to be issued when they are complete in a form and
format that complies with GAAP and all approvals necessary
for issuance have been obtained, for example, from
management, the board of directors, and/or significant
shareholders. The process involved in creating and
distributing the financial statements will vary depending on
an entity’s management and corporate governance structure as
well as statutory and regulatory requirements.
Financial Statements Are
Issued
Financial statements are considered issued
when they are widely distributed to shareholders and other
financial statement users for general use and reliance in a
form and format that complies with GAAP. (U.S. Securities
and Exchange Commission [SEC] registrants also are required
to consider the guidance in paragraph 855-10-S99-2.)
Financing
Activities
Financing activities include obtaining
resources from owners and providing them with a return on,
and a return of, their investment; receiving restricted
resources that by donor stipulation must be used for
long-term purposes; borrowing money and repaying amounts
borrowed, or otherwise settling the obligation; and
obtaining and paying for other resources obtained from
creditors on long-term credit.
Firm Commitment
An agreement with an unrelated party,
binding on both parties and usually legally enforceable,
with the following characteristics:
- The agreement specifies all significant terms, including the quantity to be exchanged, the fixed price, and the timing of the transaction. The fixed price may be expressed as a specified amount of an entity’s functional currency or of a foreign currency. It may also be expressed as a specified interest rate or specified effective yield. The binding provisions of an agreement are regarded to include those legal rights and obligations codified in the laws to which such an agreement is subject. A price that varies with the market price of the item that is the subject of the firm commitment cannot qualify as a fixed price. For example, a price that is specified in terms of ounces of gold would not be a fixed price if the market price of the item to be purchased or sold under the firm commitment varied with the price of gold.
- The agreement includes a disincentive for nonperformance that is sufficiently large to make performance probable. In the legal jurisdiction that governs the agreement, the existence of statutory rights to pursue remedies for default equivalent to the damages suffered by the nondefaulting party, in and of itself, represents a sufficiently large disincentive for nonperformance to make performance probable for purposes of applying the definition of a firm commitment.
Forecasted
Transaction
A transaction that is expected to occur for
which there is no firm commitment. Because no transaction or
event has yet occurred and the transaction or event when it
occurs will be at the prevailing market price, a forecasted
transaction does not give an entity any present rights to
future benefits or a present obligation for future
sacrifices.
Foreign Currency
A currency other than the functional
currency of the entity being referred to (for example, the
dollar could be a foreign currency for a foreign entity).
Composites of currencies, such as the Special Drawing
Rights, used to set prices or denominate amounts of loans,
and so forth, have the characteristics of foreign
currency.
Foreign Currency
Transactions
Transactions whose terms are denominated in
a currency other than the entity’s functional currency.
Foreign currency transactions arise when a reporting entity
does any of the following:
- Buys or sells on credit goods or services whose prices are denominated in foreign currency
- Borrows or lends funds and the amounts payable or receivable are denominated in foreign currency
- Is a party to an unperformed forward exchange contract
- For other reasons, acquires or disposes of assets, or incurs or settles liabilities denominated in foreign currency.
Foreign Currency
Translation
The process of expressing in the reporting
currency of the reporting entity those amounts that are
denominated or measured in a different currency.
Foreign Entity
An operation (for example, subsidiary,
division, branch, joint venture, and so forth) whose
financial statements are both:
- Prepared in a currency other than the reporting currency of the reporting entity
- Combined or consolidated with or accounted for on the equity basis in the financial statements of the reporting entity.
Foreign Exchange Risk
The risk of changes in a hedged item’s fair value or
functional-currency-equivalent cash flows attributable to
changes in the related foreign currency exchange rates.
Freestanding Contract
A freestanding contract is entered into either:
- Separate and apart from any of the entity’s other financial instruments or equity transactions
- In conjunction with some other transaction and is legally detachable and separately exercisable.
Freestanding Financial Instrument
A financial instrument that meets either of the following
conditions:
- It is entered into separately and apart from any of the entity’s other financial instruments or equity transactions.
- It is entered into in conjunction with some other transaction and is legally detachable and separately exercisable.
Functional Currency
An entity’s functional currency is the currency of the
primary economic environment in which the entity operates;
normally, that is the currency of the environment in which
an entity primarily generates and expends cash. (See
paragraphs 830-10-45-2 through 830-10-45-6 and 830-10-55-3
through 830-10-55-7.)
Gain Contingency
An existing condition, situation, or set of circumstances
involving uncertainty as to possible gain to an entity that
will ultimately be resolved when one or more future events
occur or fail to occur.
High-Yield Debt Securities
Corporate and municipal debt securities
having a lower-than-investment-grade credit rating (BB+ or
lower by Standard & Poor’s, or Ba or lower by Moody’s).
Because high-yield debt securities typically are used when
lower-cost capital is not available, they have interest
rates several percentage points higher than investment-grade
debt and often have shorter maturities. These high-yielding
corporate and municipal debt obligations are frequently
referred to as junk bonds.
Hybrid Instrument
A contract that embodies both an embedded derivative and a
host contract.
If-Converted Method
A method of computing EPS data that assumes conversion of
convertible securities at the beginning of the reporting
period (or at time of issuance, if later).
Immediate Family
Family members who might control or influence a principal
owner or a member of management, or who might be controlled
or influenced by a principal owner or a member of
management, because of the family relationship.
Imputed Interest Rate
The interest rate that results from a process of
approximation (or imputation) required when the present
value of a note must be estimated because an established
exchange price is not determinable and the note has no ready
market.
Income Approach
Valuation approaches that convert future amounts (for
example, cash flows or income and expenses) to a single
current (that is, discounted) amount. The fair value
measurement is determined on the basis of the value
indicated by current market expectations about those future
amounts.
Inputs
The assumptions that market participants would use when
pricing the asset or liability, including assumptions about
risk, such as the following:
- The risk inherent in a particular valuation technique used to measure fair value (such as a pricing model)
- The risk inherent in the inputs to the valuation technique.
Inputs may be observable or unobservable.
In-Substance Defeasance
Placement by the debtor of amounts equal to the principal,
interest, and prepayment penalties related to a debt
instrument in an irrevocable trust established for the
benefit of the creditor.
Interest Cost
Interest cost includes interest recognized on obligations
having explicit interest rates, interest imputed on certain
types of payables in accordance with Subtopic 835-30, and
interest related to a finance lease determined in accordance
with Topic 842. With respect to obligations having explicit
interest rates, interest cost includes amounts resulting
from periodic amortization of discount or premium and issue
costs on debt.
Interest Method
The method used to arrive at a periodic interest cost
(including amortization) that will represent a level
effective rate on the sum of the face amount of the debt and
(plus or minus) the unamortized premium or discount and
expense at the beginning of each period.
Interest Rate Risk
For recognized variable-rate financial instruments and
forecasted issuances or purchases of variable-rate financial
instruments, interest rate risk is the risk of changes in
the hedged item’s cash flows attributable to changes in the
contractually specified interest rate in the agreement.
For recognized fixed-rate financial instruments, interest
rate risk is the risk of changes in the hedged item’s fair
value attributable to changes in the designated benchmark
interest rate. For forecasted issuances or purchases of
fixed-rate financial instruments, interest rate risk is the
risk of changes in the hedged item’s cash flows attributable
to changes in the designated benchmark interest rate.
Intrinsic Value
The amount by which the fair value of the underlying stock
exceeds the exercise price of an option. For example, an
option with an exercise price of $20 on a stock whose
current market price is $25 has an intrinsic value of $5. (A
nonvested share may be described as an option on that share
with an exercise price of zero. Thus, the fair value of a
share is the same as the intrinsic value of such an option
on that share.)
Issued, Issuance, or Issuing of an Equity
Instrument
An equity instrument is issued when the issuing entity
receives the agreed-upon consideration, which may be cash,
an enforceable right to receive cash, or another financial
instrument, goods, or services. An entity may conditionally
transfer an equity instrument to another party under an
arrangement that permits that party to choose at a later
date or for a specified time whether to deliver the
consideration or to forfeit the right to the conditionally
transferred instrument with no further obligation. In that
situation, the equity instrument is not issued until the
issuing entity has received the consideration. The grant of
stock options or other equity instruments subject to vesting
conditions is not considered to be issuance.
Issuer
The entity that issued a financial instrument or may be
required under the terms of a financial instrument to issue
its equity shares.
Issuer’s Equity Shares
The equity shares of any entity whose financial statements
are included in the consolidated financial statements.
Junk Bonds
See High-Yield Debt Securities.
Lease
A contract, or part of a contract, that conveys the right to
control the use of identified property, plant, or equipment
(an identified asset) for a period of time in exchange for
consideration.
Lease Modification
A change to the terms and conditions of a
contract that results in a change in the scope of or the
consideration for a lease (for example, a change to the
terms and conditions of the contract that adds or terminates
the right to use one or more underlying assets or extends or
shortens the contractual lease term).
Legal Entity
Any legal structure used to conduct activities or to hold
assets. Some examples of such structures are corporations,
partnerships, limited liability companies, grantor trusts,
and other trusts.
Level 1 Inputs
Quoted prices (unadjusted) in active markets for identical
assets or liabilities that the reporting entity can access
at the measurement date.
Level 2 Inputs
Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly
or indirectly.
Level 3 Inputs
Unobservable inputs for the asset or liability.
Liability Issued With an Inseparable Third-Party Credit
Enhancement
A liability that is issued with a credit enhancement obtained
from a third party, such as debt that is issued with a
financial guarantee from a third party that guarantees the
issuer’s payment obligation.
LIBOR Swap Rate
See London Interbank Offered Rate (LIBOR) Swap Rate.
Line-of-Credit Arrangement
A line-of-credit or revolving-debt arrangement is an
agreement that provides the borrower with the option to make
multiple borrowings up to a specified maximum amount, to
repay portions of previous borrowings, and to then reborrow
under the same contract. Line-of-credit and revolving-debt
arrangements may include both amounts drawn by the debtor (a
debt instrument) and a commitment by the creditor to make
additional amounts available to the debtor under predefined
terms (a loan commitment).
Loan Commitment
Loan commitments are legally binding commitments to extend
credit to a counterparty under certain prespecified terms
and conditions. They have fixed expiration dates and may
either be fixed-rate or variable-rate. Loan commitments can
be either of the following:
- Revolving (in which the amount of the overall commitment is reestablished upon repayment of previously drawn amounts)
- Nonrevolving (in which the amount of the overall commitment is not reestablished upon repayment of previously drawn amounts).
Loan commitments can be distributed through syndication
arrangements, in which one entity acts as a lead and an
agent on behalf of other entities that will each extend
credit to a single borrower. Loan commitments generally
permit the lender to terminate the arrangement under the
terms of covenants negotiated under the agreement.
Loan Participation
A transaction in which a single lender makes a large loan to
a borrower and subsequently transfers undivided interests in
the loan to groups of banks or other entities.
Loan Syndication
A transaction in which several lenders share in lending to a
single borrower. Each lender loans a specific amount to the
borrower and has the right to repayment from the borrower.
It is common for groups of lenders to jointly fund those
loans when the amount borrowed is greater than any one
lender is willing to lend.
Local Currency
The currency of a particular country being referred to.
Lock-Box Arrangement
An arrangement with a lender whereby the borrower’s customers
are required to remit payments directly to the lender and
amounts received are applied to reduce the debt outstanding.
A lock-box arrangement refers to any situation in which the
borrower does not have the ability to avoid using working
capital to repay the amounts outstanding. That is, the
contractual provisions of a loan arrangement require that,
in the ordinary course of business and without another event
occurring, the cash receipts of a debtor are used to repay
the existing obligation.
London Interbank Offered Rate (LIBOR) Swap Rate
The fixed rate on a single-currency, constant-notional
interest rate swap that has its variable-rate leg referenced
to the London Interbank Offered Rate (LIBOR) with no
additional spread over LIBOR on that variable-rate leg. That
fixed rate is the derived rate that would result in the swap
having a zero fair value at inception because the present
value of fixed cash flows, based on that rate, equate to the
present value of the variable cash flows.
Long-Term Obligations
Long-term obligations are those scheduled to mature beyond
one year (or the operating cycle, if applicable) from the
date of an entity’s balance sheet.
Loss Contingency
An existing condition, situation, or set of circumstances
involving uncertainty as to possible loss to an entity that
will ultimately be resolved when one or more future events
occur or fail to occur. The term loss is used for
convenience to include many charges against income that are
commonly referred to as expenses and others that are
commonly referred to as losses.
Make-Whole Provision
A contractual option that gives a debtor (that is, an issuer)
the right to pay off debt before maturity at a significant
premium over the fair value of the debt at the date of
settlement.
Management
Persons who are responsible for achieving the objectives of
the entity and who have the authority to establish policies
and make decisions by which those objectives are to be
pursued. Management normally includes members of the board
of directors, the chief executive officer, chief operating
officer, vice presidents in charge of principal business
functions (such as sales, administration, or finance), and
other persons who perform similar policy making functions.
Persons without formal titles also may be members of
management.
Mandatorily Redeemable Financial Instrument
Any of various financial instruments issued in the form of
shares that embody an unconditional obligation requiring the
issuer to redeem the instrument by transferring its assets
at a specified or determinable date (or dates) or upon an
event that is certain to occur.
Market Approach
A valuation approach that uses prices and other relevant
information generated by market transactions involving
identical or comparable (that is, similar) assets,
liabilities, or a group of assets and liabilities, such as a
business.
Market-Corroborated Inputs
Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
Market Participants
Buyers and sellers in the principal (or most advantageous)
market for the asset or liability that have all of the
following characteristics:
- They are independent of each other, that is, they are not related parties, although the price in a related-party transaction may be used as an input to a fair value measurement if the reporting entity has evidence that the transaction was entered into at market terms
- They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary
- They are able to enter into a transaction for the asset or liability
- They are willing to enter into a transaction for the asset or liability, that is, they are motivated but not forced or otherwise compelled to do so.
Market Risk
The risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in
market prices. Market risk comprises the following:
- Interest rate risk
- Currency risk
- Other price risk.
Monetary Assets and Liabilities
Monetary assets and liabilities are assets and liabilities
whose amounts are fixed in terms of units of currency by
contract or otherwise. Examples are cash, short- or
long-term accounts and notes receivable in cash, and short-
or long-term accounts and notes payable in cash.
Monetary Value
What the fair value of the cash, shares, or other instruments
that a financial instrument obligates the issuer to convey
to the holder would be at the settlement date under
specified market conditions.
Net Carrying Amount of Debt
Net carrying amount of debt is the amount due at maturity,
adjusted for unamortized premium, discount, and cost of
issuance.
Net Cash Settlement
A form of settling a financial instrument under which the
entity with a loss delivers to the entity with a gain cash
equal to the gain.
Net Income
A measure of financial performance resulting from the
aggregation of revenues, expenses, gains, and losses that
are not items of other comprehensive income. A variety of
other terms such as net earnings or earnings may be used to
describe net income.
Net Share Settlement
A form of settling a financial instrument under which the
entity with a loss delivers to the entity with a gain shares
of stock with a current fair value equal to the gain.
New Basis Event
See Remeasurement Event.
Noncontrolling
Interest
The portion of equity (net assets) in a
subsidiary not attributable, directly or indirectly, to a
parent. A noncontrolling interest is sometimes called a
minority interest.
Nonfinancial
Asset
An asset that is not a financial asset.
Nonfinancial assets include land, buildings, use of
facilities or utilities, materials and supplies, intangible
assets, or services.
Nonperformance
Risk
The risk that an entity will not fulfill an
obligation. Nonperformance risk includes, but may not be
limited to, the reporting entity’s own credit risk.
Nonpublic Entity
Any entity that does not meet any of the
following conditions:
- Its debt or equity securities trade in a public market either on a stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally.
- It is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets).
- It files with a regulatory agency in preparation for the sale of any class of debt or equity securities in a public market.
- It is required to file or furnish financial statements with the Securities and Exchange Commission.
- It is controlled by an entity covered by criteria (a) through (d).
Not-for-Profit
Entity
An entity that possesses the following
characteristics, in varying degrees, that distinguish it
from a business entity:
- Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return
- Operating purposes other than to provide goods or services at a profit
- Absence of ownership interests like those of business entities.
Entities that clearly fall outside this definition include
the following:
- All investor-owned entities
- Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.
Notional Amount
A number of currency units, shares, bushels,
pounds, or other units specified in a derivative instrument.
Sometimes other names are used. For example, the notional
amount is called a face amount in some contracts.
Obligation
A conditional or unconditional duty or
responsibility to transfer assets or to issue equity shares.
Because Topic 480 relates only to financial instruments and
not to contracts to provide services and other types of
contracts, but includes duties or responsibilities to issue
equity shares, this definition of obligation differs from
the definition found in FASB Concepts Statement No. 6,
Elements of Financial Statements, and is applicable only for
items in the scope of that Topic.
Observable
Inputs
Inputs that are developed using market data,
such as publicly available information about actual events
or transactions, and that reflect the assumptions that
market participants would use when pricing the asset or
liability.
Operating Cycle
The average time intervening between the
acquisition of materials or services and the final cash
realization constitutes an operating cycle.
Operating
Activities
Operating activities include all
transactions and other events that are not defined as
investing or financing activities (see paragraphs
230-10-45-12 through 45-15). Operating activities generally
involve producing and delivering goods and providing
services. Cash flows from operating activities are generally
the cash effects of transactions and other events that enter
into the determination of net income.
Orderly
Transaction
A transaction that assumes exposure to the
market for a period before the measurement date to allow for
marketing activities that are usual and customary for
transactions involving such assets or liabilities; it is not
a forced transaction (for example, a forced liquidation or
distress sale).
Other Comprehensive
Income
Revenues, expenses, gains, and losses that
under generally accepted accounting principles (GAAP) are
included in comprehensive income but excluded from net
income.
Other Price Risk
The risk that the fair value or future cash
flows of a financial instrument will fluctuate because of
changes in market prices (other than those arising from
interest rate risk or currency risk), whether those changes
are caused by factors specific to the individual financial
instrument or its issuer or by factors affecting all similar
financial instruments traded in the market.
Parent
An entity that has a controlling financial
interest in one or more subsidiaries. (Also, an entity that
is the primary beneficiary of a variable interest
entity.)
Participating
Interest
Paragraph 860-10-40-6A defines the term
participating interest.
Participating
Security
A security that may participate in
undistributed earnings with common stock, whether that
participation is conditioned upon the occurrence of a
specified event or not. The form of such participation does
not have to be a dividend — that is, any form of
participation in undistributed earnings would constitute
participation by that security, regardless of whether the
payment to the security holder was referred to as a
dividend.
Participation
Rights
Contractual rights of security holders to
receive dividends or returns from the security issuer’s
profits, cash flows, or returns on investments.
Payment-in-Kind
Bonds
Bonds in which the issuer has the option at
each interest payment date of making interest payments in
cash or in additional debt securities. Those additional debt
securities are referred to as baby or bunny bonds. Baby
bonds generally have the same terms, including maturity
dates and interest rates, as the original bonds (parent
payment-in-kind bonds). Interest on baby bonds may also be
paid in cash or in additional like-kind debt securities at
the option of the issuer.
Payment
Provision
A payment provision specifies a fixed or
determinable settlement to be made if the underlying behaves
in a specified manner.
Physical
Settlement
A form of settling a financial instrument
under which both of the following conditions are met:
- The party designated in the contract as the buyer delivers the full stated amount of cash or other financial instruments to the seller.
- The seller delivers the full stated number of shares of stock or other financial instruments or nonfinancial instruments to the buyer.
PIK Bonds
See Payment-in-Kind Bonds.
Preferred Stock
A security that has preferential rights compared to common
stock.
Premium
The excess of the net proceeds, after expense, received upon
issuance of debt over the amount repayable at its maturity.
See Discount.
Prepayable
Able to be settled by either party before its scheduled
maturity.
Present Value
A tool used to link future amounts (cash flows or values) to
a present amount using a discount rate (an application of
the income approach). Present value techniques differ in how
they adjust for risk and in the type of cash flows they use.
See Discount Rate Adjustment Technique.
Principal Owners
Owners of record or known beneficial owners of more than 10
percent of the voting interests of the entity.
Private Company
An entity other than a public business entity, a
not-for-profit entity, or an employee benefit plan within
the scope of Topics 960 through 965 on plan accounting.
Probable
The future event or events are likely to occur.
Product Financing Arrangement
A product financing arrangement is a transaction in which an
entity sells and agrees to repurchase inventory with the
repurchase price equal to the original sale price plus
carrying and financing costs, or other similar
transactions.
Public Business Entity
A public business entity is a business entity meeting any one
of the criteria below. Neither a not-for-profit entity nor
an employee benefit plan is a business entity.
- It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
- It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
- It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
- It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
- It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.
An entity may meet the definition of a public business entity
solely because its financial statements or financial
information is included in another entity’s filing with the
SEC. In that case, the entity is only a public business
entity for purposes of financial statements that are filed
or furnished with the SEC.
Public Debt Issuance
A public debt issuance occurs when a debtor issues a number
of identical debt instruments to an underwriter that sells
the debt instruments (in the form of securities) to various
investors.
Public Entity
An entity that meets any of the following criteria:
- Has equity securities that trade in a public market, either on a stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally
- Makes a filing with a regulatory agency in preparation for the sale of any class of equity securities in a public market
- Is controlled by an entity covered by the preceding criteria. That is, a subsidiary of a public entity is itself a public entity.
An entity that has only debt securities trading in a public
market (or that has made a filing with a regulatory agency
in preparation to trade only debt securities) is not a
public entity.
Reacquisition Price of Debt
The amount paid on extinguishment, including a call premium
and miscellaneous costs of reacquisition. If extinguishment
is achieved by a direct exchange of new securities, the
reacquisition price is the total present value of the new
securities.
Readily Convertible to Cash
Assets that are readily convertible to cash have both of the
following:
- Interchangeable (fungible) units
- Quoted prices available in an active market that can rapidly absorb the quantity held by the entity without significantly affecting the price.
(Based on paragraph 83(a) of FASB Concepts Statement No. 5,
Recognition and Measurement in Financial Statements of
Business Enterprises.)
Reasonably Possible
The chance of the future event or events occurring is more
than remote but less than likely.
Reclassification Adjustments
Adjustments made to avoid double counting in comprehensive
income items that are displayed as part of net income for a
period that also had been displayed as part of other
comprehensive income in that period or earlier periods.
Registration Payment Arrangement
An arrangement with both of the following characteristics:
- It specifies that the issuer will endeavor to do
either of the following:
- File a registration statement for the resale of specified financial instruments and/or for the resale of equity shares that are issuable upon exercise or conversion of specified financial instruments and for that registration statement to be declared effective by the U.S. Securities and Exchange Commission (SEC) (or other applicable securities regulator if the registration statement will be filed in a foreign jurisdiction) within a specified grace period
- Maintain the effectiveness of the registration statement for a specified period of time (or in perpetuity).
- It requires the issuer to transfer consideration to the counterparty if the registration statement for the resale of the financial instrument or instruments subject to the arrangement is not declared effective or if effectiveness of the registration statement is not maintained. That consideration may be payable in a lump sum or it may be payable periodically, and the form of the consideration may vary. For example, the consideration may be in the form of cash, equity instruments, or adjustments to the terms of the financial instrument or instruments that are subject to the registration payment arrangement (such as an increased interest rate on a debt instrument).
Related Parties
Related parties include:
- Affiliates of the entity
- Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity
- Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management
- Principal owners of the entity and members of their immediate families
- Management of the entity and members of their immediate families
- Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests
- Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Remeasurement Event
A remeasurement (new basis) event is an event identified in
other authoritative accounting literature, other than the
measurement of an impairment under Topic 321 or credit loss
under Topic 326, that requires a financial instrument to be
remeasured to its fair value at the time of the event but
does not require that financial instrument to be reported at
fair value continually with the change in fair value
recognized in earnings. Examples of remeasurement events are
business combinations and significant modifications of debt
as discussed in paragraph 470-50-40-6.
Remote
The chance of the future event or events occurring is
slight.
Reporting Currency
The currency in which a reporting entity prepares its
financial statements.
Reporting Entity
An entity or group whose financial statements are being
referred to. Those financial statements reflect any of the
following:
- The financial statements of one or more foreign operations by combination, consolidation, or equity accounting
- Foreign currency transactions.
Repurchase Agreement
An agreement under which the transferor (repo party)
transfers a financial asset to a transferee (repo
counterparty or reverse party) in exchange for cash and
concurrently agrees to reacquire that financial asset at a
future date for an amount equal to the cash exchanged plus
or minus a stipulated interest factor. Instead of cash,
other securities or letters of credit sometimes are
exchanged. Some repurchase agreements call for repurchase of
financial assets that need not be identical to the financial
assets transferred.
Repurchase Agreement Accounted for as a Collateralized
Borrowing
A repurchase agreement (repo) refers to a transaction in
which a seller-borrower of securities sells those securities
to a buyer-lender with an agreement to repurchase them at a
stated price plus interest at a specified date or in
specified circumstances. A repurchase agreement accounted
for as a collateralized borrowing is a repo that does not
qualify for sale accounting under Topic 860. The payable
under a repurchase agreement accounted for as a
collateralized borrowing refers to the amount of the
seller-borrower’s obligation recognized for the future
repurchase of the securities from the buyer-lender. In
certain industries, the terminology is reversed; that is,
entities in those industries refer to this type of agreement
as a reverse repo.
Restatement
The process of revising previously issued financial
statements to reflect the correction of an error in those
financial statements.
Retrospective Application
The application of a different accounting principle to one or
more previously issued financial statements, or to the
statement of financial position at the beginning of the
current period, as if that principle had always been used,
or a change to financial statements of prior accounting
periods to present the financial statements of a new
reporting entity as if it had existed in those prior
years.
Revenue
Inflows or other enhancements of assets of an entity or
settlements of its liabilities (or a combination of both)
from delivering or producing goods, rendering services, or
other activities that constitute the entity’s ongoing major
or central operations.
Reverse Repurchase Agreement Accounted for as a
Collateralized Borrowing
A reverse repurchase agreement accounted for as a
collateralized borrowing (also known as a reverse repo)
refers to a transaction that is accounted for as a
collateralized lending in which a buyer-lender buys
securities with an agreement to resell them to the
seller-borrower at a stated price plus interest at a
specified date or in specified circumstances. The receivable
under a reverse repurchase agreement accounted for as a
collateralized borrowing refers to the amount due from the
seller-borrower for the repurchase of the securities from
the buyer-lender. In certain industries, the terminology is
reversed; that is, entities in those industries refer to
this type of agreement as a repo.
Right of Setoff
A right of setoff is a debtor’s legal right, by contract or
otherwise, to discharge all or a portion of the debt owed to
another party by applying against the debt an amount that
the other party owes to the debtor.
Risk Premium
Compensation sought by risk-averse market participants for
bearing the uncertainty inherent in the cash flows of an
asset or a liability. Also referred to as a risk
adjustment.
Secured Overnight Financing Rate (SOFR) Overnight Index
Swap Rate
The fixed rate on a U.S. dollar, constant-notional interest
rate swap that has its variable-rate leg referenced to the
Secured Overnight Financing Rate (SOFR) (an overnight rate)
with no additional spread over SOFR on that variable-rate
leg. That fixed rate is the derived rate that would result
in the swap having a zero fair value at inception because
the present value of fixed cash flows, based on that rate,
equates to the present value of the variable cash flows.
Securities and Exchange Commission (SEC)
Filer
An entity that is required to file or furnish its financial
statements with either of the following:
-
The Securities and Exchange Commission (SEC)
-
With respect to an entity subject to Section 12(i) of the Securities Exchange Act of 1934, as amended, the appropriate agency under that Section.
Financial statements for other entities that are not
otherwise SEC filers whose financial statements are included
in a submission by another SEC filer are not included within
this definition.
Securities Industry and Financial Markets Association
(SIFMA) Municipal Swap Rate
The fixed rate on a U.S. dollar, constant-notional interest
rate swap that has its variable-rate leg referenced to the
Securities Industry and Financial Markets Association
(SIFMA) Municipal Swap Index with no additional spread over
the SIFMA Municipal Swap Index on that variable-rate leg.
That fixed rate is the derived rate that would result in the
swap having a zero fair value at inception because the
present value of fixed cash flows, based on that rate,
equates to the present value of the variable cash flows.
Securitization
The process by which financial assets are transformed into
securities.
Security
A share, participation, or other interest in property or in
an entity of the issuer or an obligation of the issuer that
has all of the following characteristics:
- It is either represented by an instrument issued in bearer or registered form or, if not represented by an instrument, is registered in books maintained to record transfers by or on behalf of the issuer.
- It is of a type commonly dealt in on securities exchanges or markets or, when represented by an instrument, is commonly recognized in any area in which it is issued or dealt in as a medium for investment.
- It either is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations.
Set-Off Right
A common law right of a party that is both a debtor and a
creditor to the same counterparty to reduce its obligation
to that counterparty if that counterparty fails to pay its
obligation.
Share-Based Payment Arrangements
An arrangement under which either of the following conditions
is met:
- One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments.
- The entity incurs liabilities to suppliers that meet
either of the following conditions:
- The amounts are based, at least in part, on the price of the entity’s shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity’s shares and something other than either the price of the entity’s shares or a market, performance, or service condition.)
- The awards require or may require settlement by issuance of the entity’s shares.
The term shares includes various forms of ownership interest
that may not take the legal form of securities (for example,
partnership interests), as well as other interests,
including those that are liabilities in substance but not in
form. Equity shares refers only to shares that are accounted
for as equity.
Also called share-based compensation arrangements.
Shares
Shares includes various forms of ownership that may not take
the legal form of securities (for example, partnership
interests), as well as other interests, including those that
are liabilities in substance but not in form. (Business
entities have interest holders that are commonly known by
specialized names, such as stockholders, partners, and
proprietors, and by more general names, such as investors,
but all are encompassed by the descriptive term owners.
Equity of business entities is, thus, commonly known by
several names, such as owners’ equity, stockholders’ equity,
ownership, equity capital, partners’ capital, and
proprietorship. Some entities [for example, mutual
organizations] do not have stockholders, partners, or
proprietors in the usual sense of those terms but do have
participants whose interests are essentially ownership
interests, residual interests, or both.)
Short-Term Obligations
Short-term obligations are those that are scheduled to mature
within one year after the date of an entity’s balance sheet
or, for those entities that use the operating cycle concept
of working capital described in paragraphs 210-10-45-3 and
210-10-45-7, within an entity’s operating cycle that is
longer than one year.
Spot Rate
The exchange rate for immediate delivery of currencies
exchanged.
Springing Lock-Box Arrangement
Some borrowings outstanding under a revolving credit
agreement include both a subjective acceleration clause and
a requirement to maintain a springing lock-box arrangement,
whereby remittances from the borrower’s customers are
forwarded to the debtor’s general bank account and do not
reduce the debt outstanding until and unless the lender
exercises the subjective acceleration clause.
Standard Antidilution Provisions
Standard antidilution provisions are those that result in
adjustments to the conversion ratio in the event of an
equity restructuring transaction that are designed to
maintain the value of the conversion option.
Standstill Agreement
An agreement signed by the investee and investor under which
the investor agrees to limit its shareholding in the
investee.
Step Bonds
Bonds that involve a combination of deferred-interest payment
dates and increasing interest payment amounts over the bond
lives and, thus, bear some similarity to zero-coupon bonds
and to traditional debentures.
Stock Dividend
An issuance by a corporation of its own common shares to its
common shareholders without consideration and under
conditions indicating that such action is prompted mainly by
a desire to give the recipient shareholders some ostensibly
separate evidence of a part of their respective interests in
accumulated corporate earnings without distribution of cash
or other property that the board of directors deems
necessary or desirable to retain in the business. A stock
dividend takes nothing from the property of the corporation
and adds nothing to the interests of the stockholders; that
is, the corporation’s property is not diminished and the
interests of the stockholders are not increased. The
proportional interest of each shareholder remains the
same.
Stock Split
An issuance by a corporation of its own common shares to its
common shareholders without consideration and under
conditions indicating that such action is prompted mainly by
a desire to increase the number of outstanding shares for
the purpose of effecting a reduction in their unit market
price and, thereby, of obtaining wider distribution and
improved marketability of the shares. Sometimes called a
stock split-up.
Stub Period
Interest rate swaps with variable rates based on the London
Interbank Offered Rate (LIBOR) typically reset at
three-month or six-month intervals. Often, swaps may trade
on interim dates that do not correspond to a swap reset
date. Calendar dates that are swap reset and payment dates
are set by market convention. A swap that resets quarterly
may have a first payment period that is shorter than a full
quarter, such as 30 days versus 90 days. Because the first
payment period is not equal to a full quarter, it is
referred to as a stub period. That stub period is the period
that begins on the date coupon payments begin to accrue and
ends on the first payment date.
Stub Rate
The stub rate is the variable rate that corresponds to the
length of a stub period.
Subjective Acceleration Clause
A subjective acceleration clause is a provision in a debt
agreement that states that the creditor may accelerate the
scheduled maturities of the obligation under conditions that
are not objectively determinable (for example, if the debtor
fails to maintain satisfactory operations or if a material
adverse change occurs).
Subsequent Events
Events or transactions that occur after the balance sheet
date but before financial statements are issued or are
available to be issued. There are two types of subsequent
events:
- The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events).
- The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date (that is, nonrecognized subsequent events).
Subsidiary
An entity, including an unincorporated entity such as a
partnership or trust, in which another entity, known as its
parent, holds a controlling financial interest. (Also, a
variable interest entity that is consolidated by a primary
beneficiary.)
Substantive Conversion Feature
A conversion feature that is at least reasonably possible of
being exercisable in the future absent the issuer’s exercise
of a call option.
Synthetic Instrument Accounting
Synthetic instrument accounting views two or more distinct
financial instruments (generally a cash instrument and a
derivative instrument) as having synthetically created
another single cash instrument. The objective of synthetic
instrument accounting is to present those multiple
instruments in the financial statements as if they were the
single instrument that the entity sought to create.
Paragraph 815-10-25-4 states that synthetic instrument
accounting is prohibited.
Time of Issuance
The date when agreement as to terms has been reached and
announced, even though the agreement is subject to certain
further actions, such as directors’ or stockholders’
approval.
Time of Restructuring
Troubled debt restructurings may occur before, at, or after
the stated maturity of debt, and time may elapse between the
agreement, court order, and so forth, and the transfer of
assets or equity interest, the effective date of new terms,
or the occurrence of another event that constitutes
consummation of the restructuring. The date of consummation
is the time of the restructuring.
Time Value of an Option
The time value of an option is equal to the fair value of an
option less its intrinsic value.
Transaction
An external event involving transfer of something of value
(future economic benefit) between two (or more) entities.
(See FASB Concepts Statement No. 6, Elements of Financial
Statements.)
Transaction Costs
The costs to sell an asset or transfer a liability in the
principal (or most advantageous) market for the asset or
liability that are directly attributable to the disposal of
the asset or the transfer of the liability and meet both of
the following criteria:
- They result directly from and are essential to that transaction.
- They would not have been incurred by the entity had the decision to sell the asset or transfer the liability not been made (similar to costs to sell, as defined in paragraph 360-10-35-38).
Transaction Date
The date at which a transaction (for example, a sale or
purchase of merchandise or services) is recorded in
accounting records in conformity with generally accepted
accounting principles (GAAP). A long-term commitment may
have more than one transaction date (for example, the due
date of each progress payment under a construction contract
is an anticipated transaction date).
Transaction Gain or Loss
Transaction gains or losses result from a change in exchange
rates between the functional currency and the currency in
which a foreign currency transaction is denominated. They
represent an increase or decrease in both of the
following:
- The actual functional currency cash flows realized upon settlement of foreign currency transactions
- The expected functional currency cash flows on unsettled foreign currency transactions.
Translation
See Foreign Currency Translation.
Translation Adjustments
Translation adjustments result from the process of
translating financial statements from the entity’s
functional currency into the reporting currency.
Treasury Stock Method
A method of recognizing the use of proceeds that could be
obtained upon exercise of options and warrants in computing
diluted EPS. It assumes that any proceeds would be used to
purchase common stock at the average market price during the
period.
Troubled Debt Restructuring
A restructuring of a debt constitutes a troubled debt
restructuring if the creditor for economic or legal reasons
related to the debtor’s financial difficulties grants a
concession to the debtor that it would not otherwise
consider.
Underlying
A specified interest rate, security price, commodity price,
foreign exchange rate, index of prices or rates, or other
variable (including the occurrence or nonoccurrence of a
specified event such as a scheduled payment under a
contract). An underlying may be a price or rate of an asset
or liability but is not the asset or liability itself. An
underlying is a variable that, along with either a notional
amount or a payment provision, determines the settlement of
a derivative instrument.
Unit of Account
The level at which an asset or a liability is aggregated or
disaggregated in a Topic for recognition purposes.
Units-of-Revenue Method
A method of amortizing deferred revenue that arises under
certain sales of future revenues. Under this method,
amortization for a period is calculated by computing a ratio
of the proceeds received from the investor to the total
payments expected to be made to the investor over the term
of the agreement, and then applying that ratio to the
period’s cash payment.
Unobservable Inputs
Inputs for which market data are not available and that are
developed using the best information available about the
assumptions that market participants would use when pricing
the asset or liability.
Violation of a Provision
The failure to meet a condition in a debt agreement or a
breach of a provision in the agreement for which compliance
is objectively determinable, whether or not a grace period
is allowed or the creditor is required to give notice of its
intention to demand repayment.
Warrant
A security that gives the holder the right to purchase shares
of common stock in accordance with the terms of the
instrument, usually upon payment of a specified amount.
Weather Derivative
A forward-based or option-based contract for which settlement
is based on a climatic or geological variable. One example
of such a variable is the occurrence or nonoccurrence of a
specified amount of snow at a specified location within a
specified period of time.
Working Capital
Working capital (also called net working capital) is
represented by the excess of current assets over current
liabilities and identifies the relatively liquid portion of
total entity capital that constitutes a margin or buffer for
meeting obligations within the ordinary operating cycle of
the entity.
Zero-Coupon Method
A swap valuation method that involves computing and summing
the present value of each future net settlement that would
be required by the contract terms if future spot interest
rates match the forward rates implied by the current yield
curve. The discount rates used are the spot interest rates
implied by the current yield curve for hypothetical zero
coupon bonds due on the date of each future net settlement
on the swap.