On April 7, 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.

Currently, debt issuance costs are generally reported in the balance sheet as other assets. With the adoption of ASU 2015-03, these costs will not be classified separately in the balance sheet, but rather as a reduction of the related debt liability. Conceptually, debt issuance costs do not meet FASB's definition of an asset because they provide no future economic benefit. Rather, FASB considers debt issuance costs to be similar to debt discounts and, in effect, reduce the proceeds of borrowing, thereby increasing the effective interest rate. The amendments in ASU 2015-03 make the reporting of debt issuance costs consistent with the reporting of debt discounts and eliminate having different balance sheet presentation requirements for debt issuance costs and debt discounts and premiums. Health care organizations may expect to see positive impacts on certain ratios as a result of this accounting change.

For nonpublic entities, the amendments in ASU 2015-03 are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. For public companies, the amendments in ASU 2015-03 are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments in ASU 2015-03 is permitted for financial statements that have not been previously issued. Entities should apply the amendments on a retrospective basis to all periods presented.

For more information, please contact your Eide Bailly representative.