What is the preferred method of accounting for bond issuance costs under US GAAP and IFRS?

Under US GAAP and IFRS, the preferred method for accounting for bond issuance costs is to deduct these costs from the carrying amount of the bond liability and then amortize them using the effective interest method. This approach aligns the recognition of costs with the periods in which the interest expense is recognized.

When bonds are issued, any costs directly attributable to the issuance, such as underwriting fees or legal expenses, reduce the overall liability reported on the balance sheet. This treatment reflects the notion that these costs are effectively part of the financing cost of the bonds.

By amortizing these costs over the life of the bonds using the effective interest method, the financial statements present a more accurate picture of the actual interest expense incurred, reflecting the true cost of borrowing over time. This method aligns the amortization of the bond issuance costs with the financial impact of the bond liability, ensuring that they are matched to revenue generated by the use of borrowed funds.

This method is consistent with the objective of providing a true and fair view of a company's financial position and performance, as it ensures that all related costs are recognized in a systematic manner over the duration of the bond's term.