Subject Area: Debt Financing
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: August 2008
Revised: January 2010, December 2016
Refer Questions To: Claire Mueller, 773-702-3753
Purpose: To establish policy for the accounting treatment of debt issue costs.
Policy
- Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 835-30-45 requires that debt issue costs be reported on the balance sheet as a direct deduction of the face amount of the note (835-30-45-1A). Generally, debt issues costs are capitalized as a contra liability and amortized over the term of the debt. Amortization of the discount or premium is report as interest expense in the case of liabilities or as interest income in the case of assets. Amortization of debt issuance costs is reported as interest expense (835-30-45-3).
- Debt issue costs include fees and costs specifically associated with the issuance of debt which include: underwriter, legal, audit firm, financial advisor, issuing Authority, rating agency, trustee, and other miscellaneous fees. Debt issue costs do not include remarketing fees associated with variable rate debt.
- Debt issue costs will be amortized over the term of the associate debt. In the case of taxable commercial paper, which does not have a specified long term duration, the amortization period will be ten years.