Debt issuance costs are expenses directly associated with the issuance of a recognizable debt liability. They can include legal or accounting fees, underwriting commissions, or the printing and engraving of certificates. Debt issuance costs are currently presented as a deferred charge on the balance sheet asset and amortized over the life of the related outstanding debt liability.
However, under the revised standard (ASU No. 2015-03), debt issuance costs related to recognized debt liabilities are now required to be presented in the balance sheet as a direct reduction, or contra-liability, from the carrying value of the debt liability consistent with the presentation of debt discounts. The new standard is limited to the presentation of debt issuance costs and does not affect recognition and measurement guidance. Therefore, the amortization of such costs should be calculated using the interest method and reported as interest expense.
ASU No. 2015-03 will be implemented on a retrospective basis and applies to all entities that have debt issuance costs related to a recognized debt liability. Additionally, there are disclosure requirements in the first fiscal year after the entity’s adoption date. The disclosure requirements include the disclosure of the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line item (that is the debt issuance cost asset and the debt liability).
For public companies, the update is required for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are required for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is also permitted for financial statements that have not been previously issued.