Financial Reporting Considerations Of S&P Downgrade Of US Long-Term Debt
August 17, 2011
Following the Aug. 5, credit rating agency Standard & Poor’s reduced the rating of U.S. sovereign long-term debt from AAA to AA+, audit firm Deloitte has published an alert relating to this development that discusses financial reporting considerations.
Deloitte’s alert highlights that the S&P’s downgrade does not cause, in and of itself, another-than-temporary impairment of U.S. sovereign debt (i.e., this downgrade does not indicate, for accounting purposes, that there has been a credit loss for an investment in U.S. sovereign debt).
In addition, Deloitte notes that U.S. Treasury rates are still considered “risk-free” rates; thus, if previously used as an input in measurements under U.S. GAAP or IFRS, these rates may continue to be used as such an input. In addition, U.S. Treasury rates continue to be a hedgeable benchmark interest rate.
Also of note, Deloitte’s alert reminds accounting professionals that the recent volatility in the financial markets could trigger additional impairment analysis of an entity’s investments (e.g., available-for-sale (AFS) equity securities) and other assets (e.g., goodwill and indefinite-lived intangible assets).
Read more in Deloitte’s alert: Financial Reporting Considerations Related to S&P’s Downgraded Credit Rating for U.S. Long-Term Sovereign Debt.