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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