The Securities and Exchange Commission is signaling a solution to companies that are struggling with how to reflect certain debt issuance costs under new guidance from the Financial Accounting Standards Board.
SEC staff said during a meeting of FASB’s Emerging Issues Task Force that they acknowledge Accounting Standard Update No. 2015-03 on presentation of debt issuance costs doesn’t provide any guidance on how to handle costs related to revolving debt arrangements. As such, the SEC said companies can defer and present debt issuance costs associated with such arrangements as an asset, then amortize it, or write it down, over the term of the arrangement.
FASB issued a statement summarizing the SEC staff’s view as explained during the recent EITF meeting. “Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to revolving debt arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the revolving debt arrangement,” FASB said.
FASB adopted the standard on the presentation of debt issuance costs as part of its simplification initiative, looking for ways to make the accounting standards easier to apply without losing information that’s useful to investors. Under the standard, FASB said companies should treat debt issuance costs as they do debt discounts in the balance sheet, deducting them from the carrying amount of the debt liability. The standard doesn’t change the recognition or measurement of debt issuance costs, only how they are presented in the financial statements.
PwC issued an alert on the matter, explaining that the new guidance focused on how to account for outside costs related to term debt but did not address how to present fees paid to lenders or other costs incurred to secure revolving lines of credit. At the outset, those are not associated with an outstanding borrowing, the firm says. “This has generated questions about whether or how to apply the new guidance to these types of fees and costs,” PwC wrote.
The alert says the commitment fees paid by the company to the lender represent the benefit of being able to access capital over the contractual term, and therefore are not in the scope of the new guidance. “We believe it continues to be appropriate to present such fees as an asset on the balance sheet, regardless of whether or not there are outstanding borrowings under the revolver,” PwC says.
A spokesman for the SEC confirmed the SEC's position.