4.2 Recognition Date
In practice, debt liabilities are initially recognized on the settlement date (i.e.,
the date on which the debtor receives the related proceeds such as cash or other
financial or nonfinancial assets) as opposed to the date on which the debt is priced
or the parties enter into a binding agreement to issue it.
The debt’s settlement date may differ from the date on which any related hedging transaction is recognized. In FASB Statement 133 Implementation Issue No. E23 (not
codified), the Basis for Conclusions states, in part:
It is customary for a debtor or investor to enter into an at-market interest
rate swap at the date the issuance or purchase of an interest-bearing asset
or liability is firmly committed to and priced (referred to herein as the
trade date), because at that date the debtor or investor begins to be
exposed to changes in interest rates. The debt obligation often is not
recognized for financial reporting purposes until it is issued several
days later (on the settlement date). Consequently, if a hedging
relationship is designated on the trade date, the hedged item may not yet be
a recognized asset or liability. [Emphasis added]
If an entity enters into an agreement that requires or permits it to issue debt in
the future, it should consider whether it must recognize that agreement as a
derivative under ASC 815-10 until the debt is funded. Usually, such contracts are
not within the scope of the accounting requirements for derivatives because ASC 815
contains a scope exception for loan commitments (see Section 2.3.3), and the contract might not meet the net settlement
characteristic in the definition of a derivative (see Section
8.3.4.4). If an entity incurs costs and fees associated with a future
debt issuance or a commitment that requires or permits it to issue debt in the
future, it may need to capitalize such costs and fees as an asset (see Chapter 5).