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FASB Issues ASU on the Presentation of Debt Issue Costs

According to a release from Hein & Associates, on April 7, 2015, the Financial Accounting & Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. Entities that have historically presented debt issuance costs as an asset, related to a recognized debt liability, will be required to present those costs as a direct deduction from the carrying amount of that debt liability. This presentation will result is debt issuance cost being presented the same way debt discounts have historically been handled. The ASU does not change the recognition, measurement, or subsequent measurement guidance for debt issuance costs.

Adoption of this ASU will be applied retrospectively, meaning that all balance sheets presented in financial statements, including the period of adoption, should be adjusted to comply with the new requirements. Public business entities will apply the new guidance in financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. All other entities will apply the amendments in financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.

In the period of adoption, entities will need to include the applicable disclosures for a change in an accounting principle. These disclosures include 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 items. Most likely, the affected balance sheet line items will be limited to debt issuance cost assets and the related debt liabilities.

Oil & Gas 360® spoke with Jake Vossen, a CPA from Hein, about the new FASB ruling for a more in-depth look at what this means for the oil and gas industry. “Companies will now be able to take something that used to be on the asset side of the sheet and present it as a reduction of liability,” says Vossen. The ASU may not have a huge immediate impact, he said, but it will help simplifying GAPP measures moving forward. “This could be the first step in simplifying GAPP measures,” according to Vossen.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.