THE COST OF BORROWED CAPITAL: ACCOUNTING FOR INTEREST EXPENSES AND FINANCIAL LIABILITIES UNDER CONTEMPORARY REPORTING STANDARDS

Аннотация

Interest expense is one of the most consequential figures on an income statement, yet its measurement and recognition remain riddled with interpretive complexity that standard-setters have never fully resolved. This article examines how entities account for interest costs and their associated liabilities under both IFRS and US GAAP, with particular attention to the effective interest method, the classification of financial instruments, and the fair value option. Rather than treating these as settled technical matters, the article surfaces the genuine ambiguities that practitioners confront — from the boundary between borrowing costs eligible for capitalisation and those that must flow through profit or loss, to the asymmetric treatment of own credit risk under the fair value option. The discussion draws on the requirements of IFRS 9, IAS 23, IAS 32, ASC 835, and ASC 470, while acknowledging that no amount of standard-setting eliminates the role of judgment. The central argument is that the current framework, while largely coherent, rests on assumptions about market behaviour and management intent that do not always hold in practice, and that preparers, auditors, and users of financial statements all benefit from engaging with these tensions rather than papering over them