APRIL
2015
BDO FLASH ALERT
FASB
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www.bdo.com
SUBJECT
FASB ISSUES ASU TO SIMPLIFY PRESENTATION OF
DEBT ISSUANCE COSTS
SUMMARY
CONTACT:
The FASB has issued an ASU intended to simplify U.S. GAAP by changing the
presentation of debt issuance costs. Under the new standard, they will be
presented as a reduction of the carrying amount of the related liability, rather
than as an asset. The new treatment is consistent with debt discounts. It takes
effect retroactively in 2016 and is available here.
ADAM BROWN
National Director of Accounting
214-665-0673 / [email protected]
DETAILS:
Main Provisions:
ASU 2015-03 1 revises Subtopic 835-30 2 to require that debt issuance costs be
reported in the balance sheet as a direct deduction from the face amount of
the related liability, consistent with the presentation of debt discounts. Prior
to the amendments, debt issuance costs were presented as a deferred charge
(i.e., an asset) on the balance sheet. The ASU provides examples illustrating
the balance sheet presentation of notes net of their related discounts and debt
issuance costs.
Further, the amendments require the amortization of debt issuance costs to be
reported as interest expense, which we believe is largely consistent with
current practice. Similarly, debt issuance costs and any discount or premium
are considered in the aggregate when determining the effective interest rate
on the debt.
In the Basis for Conclusions, the FASB observed debt issuance costs that do not
have an associated debt liability (for example, costs incurred before proceeds
are received on a debt liability) generally are reported as deferred charges
(i.e., assets) until the related debt liability is recorded and did not propose a
change to this practice.
The standard does not affect the recognition and measurement of debt
issuance costs. As such, entities may need to track debt issuance costs
separately in order to address other areas of U.S. GAAP such as third-party
costs related to a debt restructuring accounted for under ASC 470-50 or the
calculation of a beneficial conversion feature in accordance with ASC 470-20.
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Simplifying the Presentation of Debt Issuance Costs
Interest—Imputation of Interest
GAUTAM GOSWAMI
National Assurance Partner
312-616-4631 / [email protected]
CHRIS SMITH
Audit & Accounting Professional
Practice Leader
310-557-8549 / [email protected]
BDO FLASH ALERT FASB
Effective Date and Transition:
The amendments are effective for public business entities for fiscal years beginning after December 15, 2015, and interim
periods within those fiscal years. The amendments are effective for all other entities for fiscal years beginning after
December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. The amendments must be
applied retrospectively. All entities have the option of adopting the new requirements as of an earlier date for financial
statements that have not been previously issued. Applicable disclosures for a change in an accounting principle are
required in the year of adoption, including interim periods.
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needs.
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