Yes. Under mainstream accounting frameworks, companies generally capitalize interest incurred during the construction of a qualifying project and add it to the asset’s carrying amount rather than recognizing it immediately as an interest expense. This practice aligns reported profit, asset values, and cash-flow presentation with the economic reality that borrowing costs are part of the cost of bringing a long-life asset into use.
Accounting standards and authoritative guidance
International Accounting Standard 23 Borrowing Costs issued by the International Accounting Standards Board IFRS Foundation requires capitalization of borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset. In U.S. GAAP, ASC 835-20 Guidance on Capitalization of Interest issued by the Financial Accounting Standards Board FASB sets similar rules: interest may be capitalized during the capitalization period while activities necessary to prepare the asset for its intended use are in progress. Both frameworks define conditions, measurement approaches, and permissible suspensions to ensure comparability and to prevent capitalization for routine operational borrowing.
Relevance, causes, and consequences in project finance
Project finance typically involves significant upfront borrowing for infrastructure, energy, or large industrial projects with multi-year construction phases. The cause for capitalization is that interest incurred is a necessary part of bringing the asset to working condition; capitalizing it increases the project’s initial recorded cost, deferring expense recognition until depreciation begins. Consequences include higher asset values and initially higher reported profits compared with expensing interest immediately, which can influence loan covenants, investor perceptions, tax bases where local law follows accounting treatment, and the timing of revenue recognition.
Nuances arise across legal and cultural environments: jurisdictions differ in tax treatment and acceptance of capitalization, and lenders may negotiate covenant language that references specific accounting approaches. For socially and environmentally sensitive projects—such as hydroelectric dams or urban transit—capitalized interest affects community perceptions of project viability and long-term fiscal commitments by regional governments. Practically, companies must document eligibility, monitor construction progress, and apply consistent policy to avoid misstatement or covenant breaches.