Of Interest to You

In November 2017, the Governmental Accounting Standards Board (GASB) issued an Exposure Draft entitled Accounting for Interest Cost during the Period of Construction.  The GASB is proposing a standard that would significantly change the way certain interest costs are accounted for during the period of construction of capital assets.  And (for once) for the better!  If approved in its current form (and I do not anticipate any real challenges to this proposal), governmental entities would simply recognize interest as an expense or an expenditure in the period it’s incurred, whether or not it is during the construction period.  As such, there would be no further interest capitalization to calculate and report. A Little History Governmental entities are currently required to capitalize related interest incurred during the construction period in business-type activities and enterprise funds.  The interest expense incurred during the actual construction period is considered part of the cost of acquiring the capital asset in question and thus part of the historical cost of the asset.  When the construction period ends, further incurrence of interest expense is simply recognized as a period expense. Current GAAP is actually rooted in standards promulgated for the private sector by the Financial Accounting Standards