The ASU specifies that “issue costs shall be reported in the balance sheet as a direct deduction from the face amount of the note” and that “[a]mortization of debt issue costs shall also be reported as interest expense.” According to the ASU’s Basis for Conclusions, debt issuance costs incurred before the associated funding is received (i.e., the debt liability) should be reported on the balance sheet as deferred charges until that debt liability amount is recorded.
For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after 15 December 2015. For entities other than public business entities, the guidance is effective for fiscal years beginning after 15 December 2015, and interim periods beginning after 15 December 2016. Early adoption is allowed for all entities for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods (i.e. the balance sheet for each period is adjusted).
Requiring presentation of debt issuance costs as a direct reduction of the related debt liability (rather than as an asset) is consistent with the presentation of debt discounts under US GAAP. In addition, it converges the guidance in US GAAP with that in IFRSs, under which transaction costs that are directly attributable to the issuance of the liability are treated as an adjustment to the initial carrying amount of the financial liability.
For more information, see Deloitte's related Heads Up newsletter, as well as the ASU on the FASB’s website.