The Financial Accounting Standards Board has revised its accounting standards to provide greater consistency in the treatment of various types of debt restructuring.
Accounting Standards Update No. 2011-02, "Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt," clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings.
“The increase in loan modifications caused by the recent economic downturn led investors, regulators, and practitioners to ask the board to clarify what types of modifications should be considered troubled debt restructurings for accounting and disclosure purposes,” states FASB Chairman Leslie F. Seidman in a statement. “This update provides that guidance, resulting in greater consistency and transparency in the reporting of these transactions.”
For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. For nonpublic entities, the amendments in the update are effective for annual periods ending on or after Dec. 15, 2012, including interim periods within that annual period. Early application is permitted.
FASB noted in the update that International Financial Reporting Standards does not have guidance on troubled debt restructurings. IFRS 7, "Financial Instruments: Disclosures," requires the disclosure of the carrying amount of renegotiated debt, which is defined as debt whose terms were renegotiated that otherwise would be past due or impaired without that renegotiation.
The update is available at www.fasb.org.
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