FASB issues changes regarding presentation of debt issuance

By Neil Amato

FASB issued an Accounting Standards Update on Tuesday aimed at simplifying the presentation of debt issuance costs.

ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, requires that “debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.”

FASB received 28 comment letters after issuing an exposure draft on Oct. 14, 2014. The comment deadline was Dec. 15, 2014

Unnecessary complexity was being created by different balance sheet presentation requirements for debt issuance costs and debt discount and premium, according to the comment letters.

FASB said that recognizing debt issuance costs as a deferred charge is different from guidance in IFRS, which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets.

FASB also said in ASU No. 2015-03 that the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements.

Concepts Statement No. 6 says that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate.

The standard takes effect for public companies for financial statements issued for fiscal years beginning after Dec. 15, 2015, and interim periods within those fiscal years. For private companies and not-for-profit organizations, the standard takes effect for fiscal years beginning after Dec. 15, 2015, and interim periods within fiscal years beginning after Dec. 15, 2016. Early adoption is permitted.

Neil Amato ( namato@aicpa.org ) is a JofA senior editor.


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