Accounting Update: New Guidance on Reporting Construction Project Interest Costs

Introduction: GASB 89

On May 22nd, the Governmental Accounting Standards Board (GASB) issued new guidance to establish accounting requirements for the interest costs incurred before the end of a construction period. The new standard, GASB Statement 89, Accounting for Interest Cost Incurred before the End of a Construction Period, makes it easier to compare the information about capital assets and borrowing costs for government activities and business-type activities by state and local governments. It also simplifies accounting for interest cost incurred before the end of a construction period.

Key Requirements

Statement 89 requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund.

For financial statements that are prepared with the current financial resources measurement focus, the interest cost incurred before the end of a construction period should be recognized as an expense according to governmental fund accounting principles.

Effective Date and Transition

The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. Earlier application is encouraged. The requirements of this Statement should be applied prospectively.

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