Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

MEANING AND DEFINITION OF FIXED INCOME SECURITIES

Fixed income security refers to any type of investment that yields a regular or fixed return. It is an investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. In a variable income security, payments change based on some underlying benchmark measure such as short-term interest rates. However, in this and subsequent chapters, by fixed income securities we mean debt securities that yield a regular return in the form of interest. The terms “debt securities” and “fixed income securities” are used here interchangeably.

A debt security is defined as “any security representing a creditor relationship with an enterprise. It also includes (a) preferred stock that by its terms either must be redeemed by the issuing enterprise or is redeemable at the option of the investor and (b) a collateralized mortgage obligation or such other instrument that is issued in equity form but is required to be accounted for as a non-equity instrument regardless of how that instrument is classified (that is, whether equity or debt) in the issuer’s statement of financial position.”1

As per the same definition, however, “a debt security excludes option contracts, financial futures contracts, forward contracts, and lease contracts.”

The Accounting Standards Codification defines a security as “a share, participation, or other interest in property or in an enterprise of the issuer or an obligation ...