Definition
Debt issuance costs include lender fees, legal costs, and underwriting charges incurred to obtain a loan. Under ASC 835-30 (ASU 2015-03), they are presented on the balance sheet as a direct deduction from the carrying amount of the related debt, not as an asset, and are amortized to interest expense over the term using the effective interest method. For line-of-credit arrangements, SEC staff guidance codified through ASU 2015-15 permits presenting the costs as an asset and amortizing them ratably over the arrangement's term. Costs of a modification or extinguishment follow ASC 470-50.
Why it matters in an audit or review
Auditors vouch the costs to closing statements, test the amortization schedule, and check unamortized balances after prepayment or refinancing. Unamortized costs are written off when debt is extinguished. Total interest expense, covenants such as interest coverage, and the presentation of net debt all depend on the treatment.
Example
(Illustrative) A company borrows $1,000,000 for five years and pays $25,000 of fees, receiving $975,000. Straight-line approximation: $5,000 a year is amortized to interest expense. The debt carrying amount is $975,000 at inception and $980,000 a year later.
Common mistakes
- Expensing all fees on day one.
- Not writing off unamortized costs on payoff.
Sources
- FASB ASC 835-30, Interest, Imputation of Interest (presentation and amortization of debt issuance costs, ASU 2015-03)
- FASB ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30), line-of-credit arrangements
- FASB ASC 470-50, Debt, Modifications and Extinguishments
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error