FASB Issues New Accounting Guidance for Troubled Debt Restructurings
The Financial Accounting Standards Board (FASB) has recently issued Accounting Standards Update (ASU) 2011-02: A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The primary objective of this Update is to create greater consistency in the manner in which GAAP is applied for various types of debt restructuring and is intended to clarify which loan modifications constitute troubled debt restructurings (TDR). The main provision of this Update will require a creditor to separately conclude whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties, in order to determine if a restructuring constitutes a TDR. Guidance is also provided to assist the creditor in evaluating these two criteria. Furthermore, the amendments clarify that a creditor is precluded from using the effective interest rate test, as described in the debtor?s guidance on restructuring payables, when evaluating whether a restructuring constitutes a TDR.
This Update provides an effective date for the TDR-specific amendments created by ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which had been temporarily deferred by ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings. For public entities, the amendments in ASU 2011-02 and the TDR-specific amendments in ASU 2010-20 are effective for the first interim or annual period beginning on or after June 15, 2011, and they should be applied retrospectively to the beginning of the annual period of adoption. For non-public entities, the amendments are effective for annual reporting periods ending on or after December 15, 2012, including interim periods within those annual periods. Early adoption is permitted.
The amendments of ASU 2011-02 modify Accounting Standards Codification subtopics 310-10 and 310-40. To view this ASU in its entirety, please click here.
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