The Financial Accounting Standards Board is proposing changes to accounting standards that are meant to simplify things around debt issuance costs and defined benefit plan measurement dates.

With respect to debt issuance costs, FASB is hoping to remove a source of confusion for users of financial statements over different presentation requirementsfor debt issuance costs compared with debt discounts or premiums. Current  rules tell companies they should capitalize any costs paid to third parties that are directly related to issuing debt, like legal fees or printing costs, and present them as deferred charges in the asset area of the balance sheet. That’s different treatment than companies are required to give to discounts or premiums resulting from the difference between the net proceeds of the debt issuance and the amount payable at maturity; those are taken as a direct adjustment to the face amount of the debt under existing guidance.

FASB is proposing to require that debt issuance costs be considered a deduction to the corresponding debt, even when paid to a third party, so that all debt issuance costs get the same treatment and presentation. The proposal would not affect any other aspects of measuring or recognizing debt issuance costs in financial statements.

In a separate proposal, FASB is hoping to make things a little easier for companies whose fiscal year end does not fall on a calendar date that matches the valuation information received on defined benefit plans. Accounting rules require companies to report on the fair value of defined benefit plan assets as of their financial statement reporting dates, such as their fiscal year end.

If the fiscal year end date doesn’t match the month-end report provided by a third-party service provider, companies must make adjustments. That could become especially tricky if there are contributions or deductions from plan assets in that interim period. FASB is proposing to change the measurement date requirements to allow companies to make and disclose an accounting policy election to use an alternative date for measuring defined benefit plan assets and obligations.

Both accounting adjustments are part of FASB’s fast expanding simplification initiative, where the board is pursuing quick fixes to accounting standards that are meant to make things simpler for preparers without harming the quality of information provided to users of financial statements. In an alert to clients, EY says it welcomes the proposed treatment of debt issuance costs but laments that it doesn’t address other complexities related to debt issuance costs, like the treatment for costs paid to secure revolving lines of credit when amounts are drawn and repaid periodically. EY also points out that while companies may cheer the measurement date change for defined benefit plans reported in financial statements, it doesn’t change the measurement date for the financial statements for the plan itself.

 

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