Presentation of Debt Issuance Costs Has Been Simplified By FASB

Saturday, April 25, 2015 Print Email

An accounting standard update has been issued by the Financial Accounting Standard Boards that simplifies the presentation of debt issuance costs. The FASB has taken this simplification step for getting rid of the complexity present in the accounting standards, whereas, making better and maintaining the worth of the information offering to users of financial documents.

According to FASB, it got different feedback from users of financial statements, which prove balance sheet presentation requirements for debt premium and discount and debt issuance are creating unneeded complications.

FASB said, “The concept of IFRS about the debt issuance costs is different. It states that debt issuance costs are an asset, and transaction costs should be deducted from the carrying value of the financial liability. But, the FASB concept about the debt issuance costs in statement No. 6 elaborates that this costs is alike with the debt discounts, and affect the interest rates. So, it is not an asset as it is not providing any extra economic advantage.”

The changes in accounting standards of FASB are now require that debt issuance costs should be deducted from the carrying amount of the debt liability, just like debt discounts are deducted from the debt liability in the balance sheet. These amendments in the accounting standards are useful for the financial statements of entities issued for the financial year starts after Dec. 15, 2015. For those financial statements that have not been issued yet can adopt these updates of accounting standards.

According to FASB, for cautionary purpose, an entity should apply the latest amendments on a demonstrative basis, as all the effects like (effect on the change on the financial statements items, reason and nature for the change in accounting principle) of the new guidance should be clearly mentioned.

Source: ReadyRatios

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