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FASB Issues Guidance on Guarantees

Norwalk, Conn. (Nov. 27, 2002) – In an effort to more accurately portray the risk companies have assumed, the Financial Accounting Standards Board in the United States on Monday offered new guidance on disclosure requirements for guarantees.

Interpretation No. 45, “Guarantor’s Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” elaborates on current guidance. Specifically, it clarifies that at the time a company issues a guarantee, it must recognize an initial liability for the market value of the obligations it assumes and must put that information in all of its financial statements.

“By improving the required disclosures and accounting, the FASB’s new accounting guidance will provide a more representationally faithful picture of a company’s financial position and the risk it has assumed,” said FASB senior project manager Robert C. Wilkins. “The interpretation should significantly improve the reporting of guarantees that are issued in conjunction with other transactions, such as when a seller also guarantees its customer’s repayment of the funds borrowed to pay the seller for the customer’s purchases.”

The interpretation, which can be found at www.fasb.org, expands on the guidance of Statements No. 5, 57 and 107, and incorporates the provisions of Interpretation No. 34, which is being superseded.

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