Applicability Defining Issues: FASB amends TDR guidance and enhances disclosures, Companies that hold investments in debt and equity securities, Accounting for investments in debt securities, Accounting for investments in equity securities. Debt, warrants, and equity: Whats trending in SEC comments, Company name must be at least two characters long. Sharing our expertise and perspective. Updated: Guidance to help navigate financial statement requirements for acquired businesses. Our in-depth guide comprises a collection of questions, issues and examples that we believe are relevant for companies thinking about the ways in which climate risk can affect their financial statements. Partner, Dept. Latest edition: Our comprehensive guide to managements going concern assessment. This handbook is a guide to accounting for investments in debt and equity securities. Receive timely updates on accounting and financial reporting topics from KPMG. All rights reserved. We provide new and updated interpretive guidance on applying ASC 230 to crypto assets, pensions, factoring, debt arrangements and cash equivalents. Do Not Sell or Share My Personal Information (California), A guide to accounting for debt modifications and restructurings. All rights reserved. In this article, we discuss the main differences between the two sets of standards. Under US GAAP, when a debt instrument is modified multiple times within a one-year period without the terms being considered to be substantially different, the debt terms that existed before the earliest modification within the one-year period are compared to the most recently modified terms to determine whether the current modification of terms is substantially different. Do our capital management plans align with our long-term strategic objectives? Latest edition: Our Q&As on the FASBs revenue and other income recognition standards in the real estate industry. of Professional Practice, KPMG US, Senior Manager, Dept. Member firms of the KPMG network of independent firms are affiliated with KPMG International. Global Head of Debt Advisory, Global Lead Partner, Engage with your customers on their terms, KPMG Powered Enterprise Automation Testing, KPMG Powered Enterprise Digital Solutions, KPMG Connected Enterprise Capability Maturity Assessment, Optimizing operations with KYC Managed Services, Increasing efficiency with MRM managed services, Architecting Risk and Operational Transformation, Anti-Money Laundering and Trade Sanctions Services, Statutory Accounting & Bookkeeping Compliance, Better Business Reporting/Integrated Reporting. The modification affects the terms of an embedded conversion option, causing a change in the fair value of the embedded conversion option of at least 10% of the carrying amount of the original debt immediately before the modification. For a variety of reasons, borrowers and lenders may renegotiate the terms of existing loans or exchange an existing loan for a new loan with the same lender. In-depth guidance on ASC 848s optional relief for affected contracts and transactions. Instruments that encompass a residual interest in the assets of an entity after deducting all of its liabilities are classified as equity. The ASU: Eliminates the requirement for creditors to recognize and measure certain modifications as troubled debt restructurings. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. 1. The chapters in this handbook address frequently asked questions related to the scope of ASC 320 and 321, recognition and measurement for investments in debt and equity securities, and classification of debt securities. We have created a thought leadership platform to help you address the ever-increasing and complex marketplace challenges and drive inorganic growth in a globally connected economy. Conversely, when a modification is non-substantial, the original debt instrument is not extinguished. Where a modification is non-substantial based on the quantitative assessment (see our article Loan modifications and derecognition ), Company P has an accounting policy choice, to be applied consistently, to either: Discount the new cash flows using the original effective interest rate of 7%. One of these is the treatment of non-substantial modifications of financial assets or financial . Use our Accounting Research Online website for financial reporting resources. Receive timely updates on accounting and financial reporting topics from KPMG. 2. kbauer@deloitte.com +1 203 708 4000 A National Office Audit partner with more than 15 years of experience, Kristin leads the revenue recognition subject matter team within the Accounting Standards and Communications group. IFRS 9 qualitative assessment does not exist under US GAAP. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. US GAAP contains prescriptive guidance on how to perform the 10% test. Reduction in impairment models 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. As the FASB and SEC focus on providing evermore useful information to financial statement users, they have specifically mentioned the statement of cash flows as a way to provide that information. Sharing our expertise and perspective. Informing your decision-making. Objective third-party advisors, combining quick strategic advice on the situation 2023Copyright owned by one or more of the KPMG International entities. In-depth guidance on, and interpretation of, ASC 326. These remaining investments typically give the investor limited (if any) influence over the investee. 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. Prior to join. This one focuses on accounting for debt modifications. Navigating the accounting for debt modifications can be challenging. Both IFRS Standards and US GAAP3use a 10% threshold in the quantitative assessment to determine if a debt modification is substantial. NOTE: This course is currently being modified and updated for accounting standard updates. In-depth guide on presentation and disclosure requirements under US GAAP, plus considerations under SEC regulations. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Requirements to provide separate sets of financial statements for guarantors and non-guarantors of debt as a result of Rule 3-10 of Regulation S-X. For inquiries and feedback please contact our AccountingLink mailbox. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Handbook: Revenue recognition March 24, 2023 US GAAP TDR accounting does not exist under IFRS 9. If not, the accounting outcomes depend on whether the nontroubled modification is substantial, similar to IFRS Standards. Hot Topic: FAQs about FASBs ASU on modified receivables, Companies that hold financial instruments in the scope of the credit losses standard. Our multi-disciplinary approach and deep, practical industry knowledge, skills and capabilities help our clients meet challenges and respond to opportunities. Improving business performance, turning risk and compliance into opportunities, developing strategies and enhancing value are at the core of what we do for leading organizations. Differences may arise in practice. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Latest edition: We highlight significant differences in accounting for asset acquisitions vs business combinations. Explore the topics at the Financial Reporting View. KPMG does not provide legal advice. Software and SaaS industry overview. All rights reserved. This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. Chapter 3: Debt modification and extinguishment. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Latest edition: Our updated guide for long-duration contracts, with Q&As, interpretive guidance and examples. Do the changes meet the definition of a troubled debt structuring? Therefore, diverse presentation practices remain. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Under IFRS 9, in our view, the following approaches may also be acceptable, as long as the selected approach is applied consistently (in each case the contractual rate is used for the remaining coupons of the original debt for which interest rate has been determined): ii. KPMGs guide provides interpretive guidance, including Q&As and illustrative examples, on the application of ASC 853. However, under US GAAP, if the modification involves a substantial change in the debts currency, we believe an entity can choose an accounting policy to either automatically conclude that the terms of the debt have been substantially modified (in our view, this is required by IFRS Standards) or apply the 10% test. This latest edition includes guidance on ASU 2022-02 (troubled debt restructurings and vintage disclosures), with new interpretations and examples based on experience with companies implementing ASC 326. Partner, Dept. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. KPMG Technical Accounting Advisory Services provides on-call advice and project-based support in many areas, including: Accounting advice, interpretation, and transactional support for mergers, acquisitions, divestitures, investments, structured finance, debt and equity offerings, leasing, and derivatives. This specific guidance does not exist in IFRS 9, where the assessment requires more judgment. Accordingly, we believe that modifications whose effect is included in the quantitative assessment, and that are not considered substantial based on that assessment, cannot generally be considered substantial on their own from a qualitative perspective. Any change to the amortised cost of the financial liability is required to be recognised within profit or loss at the date of the modification. KPMG does not provide legal advice. Costs and fees incurred in the modification. Delivering insights to financial reporting professionals. Our new guide explains the measurement and reporting of GHG emissions through the lens of the Greenhouse Gas Protocol. Visit rsmus.com/about for more information regarding RSM US LLP and RSM International. of Professional Practice, KPMG US. Provides an overview of the standard's concepts, descriptions of the procedures and an illustrative example of its application. use the relevant benchmark interest rate determined for the current interest accrual period according to the original terms of the debt instrument; or. For more detail about our structure please visithttps://kpmg.com/governance. Latest edition: Our in-depth guide to accounting for acquisitions of businesses, updated for recent application issues. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Under US GAAP, a debt modification is always considered substantial in the following circumstances. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. KPMG experts and professionals continually research, update and produce many publications. The statement of cash flows is a central component of an entitys financial statements. In our view, the purpose of a qualitative assessment is to identify substantial differences in terms that by their nature are not captured by a quantitative assessment. Please reach out to, Effective dates of FASB standards - non PBEs, Business combinations and noncontrolling interests, Equity method investments and joint ventures, IFRS and US GAAP: Similarities and differences, Insurance contracts for insurance entities (post ASU 2018-12), Insurance contracts for insurance entities (pre ASU 2018-12), Investments in debt and equity securities (pre ASU 2016-13), Loans and investments (post ASU 2016-13 and ASC 326), Revenue from contracts with customers (ASC 606), Transfers and servicing of financial assets, Compliance and Disclosure Interpretations (C&DIs), Securities Act and Exchange Act Industry Guides, Corporate Finance Disclosure Guidance Topics, Center for Audit Quality Meeting Highlights, Insurance contracts by insurance and reinsurance entities, {{favoriteList.country}} {{favoriteList.content}}, Modifications or exchanges of term loans or debt securities, Modifications or exchanges of lines of credit or revolving-debt arrangements, Modifications or exchanges of loan syndications or participations, 3.1Overviewof debt modification and extinguishment. And for practical issues where the guidance remains unclear, we offer our position on how to classify many of these cash flows. Webcast: Statement of cash flows: Practical issues, Cash, cash equivalents and restricted cash, Securitization and other transfers of financial assets. This new KPMG guide compares the financial reporting implications of the CARES Act under IFRS to US GAAP. Latest edition: Our in-depth guide to ASC 842 with Q&As, interpretive guidance and examples. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. We use cookies to personalize content and to provide you with an improved user experience. Our publication, A guide to accounting for debt modifications and restructurings, addresses the borrower's accounting for the modification, restructuring or exchange of a loan. For affected institutions, the amendments compel advanced planning . Partner, Dept. It may require significant judgment, in particular around the underlying terms, assumptions, calculations and conclusions. Applicability All entities Relevant dates Effective immediately Report contents The amendments in the ASU respond to feedback receivedduring the post-implementation review of the creditimpairment standard (ASC 326). Delivering insights to financial reporting professionals. The debt markets are dynamic and complex. Explore the topics at the Financial Reporting View. the financial liability). Each member firm is a separate legal entity. All rights reserved. exhibit 10.1 . Connect with us via webcast, podcast or in person/virtual at industry conferences. Crowe accounting professionals address some FAQs in this insight. If a significant modification occurs, the existing debt is deemed to be exchanged for a new debt instrument. 1 Entities that have not previously adopted ASU 2016-13 will adopt ASU 2022-02 at the same time that they adopt ASU 2016-13. Recognition of expected credit losses, writeoffs and recoveries, Methods to estimate expected credit losses and collective assessment, Historical loss experience, forecasts and reversion, Credit enhancements and practical expedients, Purchased financial assets with credit deterioration, Business combinations and asset acquisitions, Other investments in equity method investees, Specific considerations for insurance entities, commercial entities and trade receivables, Targeted changes foravailable-for-sale debt securities, Presentation, disclosure, effective date and transition. Cash flows are classified as either operating, financing or investing activities depending on their nature. All companies with debt that could potentially be modified, Accounting for line-of-credit modifications. Consider removing one of your current favorites in order to to add a new one. Overview. of Professional Practice, KPMG US. of Professional Practice, KPMG US. Debt arrangements are often modified, not only when a borrower is in financial difficulty but also to adjust to more favorable market financing conditions; and COVID-19 has caused economic volatility that has resulted in an even greater volume of modifications. Use our Accounting Research Online for financial reporting resources. Our in-depth guide to accounting for employee benefits under ASC 420, ASC 710, ASC 712, ASC 715 and ASC 718-40. Eliminates the requirement for creditors to recognize and measure certain modifications as troubled debt restructurings. Our international network of specialists will help you focus on the key questions to help you make sound funding decisions to support the management of financial risk and maximize value. For income tax purposes, it is important to consider whether a modification of an existing debt constitutes a "significant modification" pursuant to Treas. The accounting for modified debt under IFRS 9 is summarized in the following table. 6. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. 61, 71, 82 and 90, as well as the Auditing Standards Board's proposal to expand its fraud standard which would substantially increase the need to . We provide new and updated interpretive guidance on applying ASC 230 to crypto assets, pensions, factoring, debt arrangements and cash equivalents. The accounting change has been particularly impactful to institutions with significant lending activities or investments in debt securities. IFRS 9 does not have similar guidance. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. Latest edition: Our in-depth guide to ASC 205-20 and held-for-sale disposal groups under ASC 360-10. Significant differences in accounting for debt modifications can be challenging compares the financial reporting resources: comprehensive... 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Requirement for creditors to recognize and measure certain modifications as troubled debt restructurings all Companies with debt that potentially! At industry conferences upon such information without appropriate professional advice after a thorough examination of the and... Require significant judgment, in particular around the underlying terms, assumptions, calculations conclusions! Liabilities are classified as either operating, financing or investing activities depending on their nature overview of KPMG! To personalize content and to provide you with an improved user experience two long...