When they are substantially modified (i.e. The first comprehensive accounting and reporting guidance on investments in debt and equity securities was issued in 1993. KPMG does not provide legal advice. Alternatively, a reporting entity may decide to extinguish its debt prior to maturity. Step 2: Identify the performance obligations in the contract. This complexity increases for dual preparers because of the differences between IFRS Standards and US GAAP. Our in-depth guide to the accounting, presentation and disclosures of investments in debt and equity securities. US GAAP treats debt modification costs paid to third parties differently from those paid to lenders; IFRS 9 does not. Naturally, there are accounting implications when the borrower and lender agree to modify or restructure an existing loan or exchange one loan for another. Unsurprisingly, contract modifications have become more frequent in the COVID-19 environment. The composition of cash and cash equivalents also often raises questions. Partner, Dept. Enhances the disclosures by creditors for certain modifications of receivables to debtors experiencing financial difficulty. As used in this Item 5.F.1, the term purchase obligation means an agreement to purchase goods or services that is enforceable and legally binding on the company that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.. G. Safe harbor. Explore the topics at the Financial Reporting View. But identifying the appropriate activity category for the many types of cash flows can be complex and regularly attracts SEC scrutiny. 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. The difference between the carrying amount of the original debt and the consideration paid to extinguish it, which includes the fair value of the new debt. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. IFRS 9 provides no specific guidance in such a scenario and each modification is assessed separately. Please seewww.pwc.com/structurefor further details. Register early and save! In the interim, please subscribe to the Financial Reporting View for the latest insights on this topic. One of these is the treatment of non-substantial modifications of financial assets or financial . Discussion paper proposes to reduce diversity under IFRS Standards for acquisitions within a group. Member firms of the KPMG network of independent firms are affiliated with KPMG International. Measurement of the debt (i.e. This is the third of a series on accounting for debt and equity related webcasts. Sharing your preferences is optional, but it will help us personalize your site experience. This chapter discusses the accounting for debt modifications and exchanges, including: This chapter also discusses the accounting for debt defeasances and extinguishments. This handbook is a guide to accounting for investments in debt and equity securities. US GAAP is more prescriptive and also provides specific guidance for troubled debt restructurings. Welcome to Viewpoint, the new platform that replaces Inform. All rights reserved. the vintage year) for the related financing receivables and net investments in leases. Both IFRS Standards and US GAAP address debt modifications. Both assessments may require significant judgment. Our guide summarizes the relevant guidance on how to account for the modification, restructuring or exchange of a loan, addresses many practice issues that arise in applying that guidance and provides numerous examples illustrating its application. Overview. Similarly, the impact to profit or loss differs based on whether the terms of the original debt have been substantially modified. For inquiries and feedback please contact our AccountingLink mailbox. A reporting entity should also derecognize a debt instrument (and recognize a new one) when a debt modification or exchange is deemed an extinguishment. In-depth guide on presentation and disclosure requirements under US GAAP, plus considerations under SEC regulations. Delivering insights to financial reporting professionals. Partner, Dept. of Professional Practice, KPMG US. Sharing our expertise and perspective. Informing your decision-making. To thrive in today's marketplace, one must never stop learning. By continuing to browse this site, you consent to the use of cookies. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. Visit rsmus.com/about for more information regarding RSM US LLP and RSM International. These may include changes in principal amounts, maturities, interest rates, prepayment options and other contingent payment terms. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. IFRS 9 does not define the term 'fees' in the context of performing the quantitative assessment. Latest edition: Our in-depth consolidation guide, covering variable interest entities, voting interest entities and NCI. See FG 3.4 for information on modifications and exchanges of term loans and debt securities, and FG 3.6 for information on modifications and exchanges of loan syndications and participations. FASB amends TDR guidance and enhances disclosures, Annual and interimperiods Fiscal years beginning after, December 15, 2022; consistent with when the entity first applies ASC 326. The accounting for modified debt under IFRS 9 is summarized in the following table. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. A gain or loss should be recognised in profit or loss for modifications of such financial liabilities that do not result in derecognition. Our FRD publication on exit or disposal cost obligations has been updated to clarify and enhance our interpretative guidance. 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. 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. This was slightly down on the 2015 rate of 81%. Sharing our expertise and perspective. Assuming TDR accounting does not apply, US GAAP and IFRS 9 differ on how to assess if a modification is substantial (differences #2, #3 and #4), and the accounting for substantial and non-substantial debt modifications also differs (differences #5, #6 and #7). 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. of Professional Practice, KPMG US. selected dealer agreement . Extinguishment accounting: the original debt is derecognized and a new debt is recognized. But there have been several changes (especially for equity securities) as well as challenges in applying the guidance to new facts and circumstances and new types of investments. Handbook: Revenue recognition March 24, 2023 5. In August, 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, resulting in the most substantial changes to this accounting standard in many years. KPMG refers to the global organization or to one or more of the member firms of KPMG International Limited (KPMG International), each of which is a separate legal entity. Cash flows are classified as either operating, financing or investing activities depending on their nature. Latest edition: Our in-depth guide to ASC 205-20 and held-for-sale disposal groups under ASC 360-10. Here we offer our latest thinking and top-of-mind resources. KPMG does not provide legal advice. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. 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%. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. All rights reserved. Latest edition: Includes new and updated interpretations for ASC 842 and recent practice issues. We offer hands-on assistance in analyzing options, structuring, arranging and achieving financial close across the full spectrum of debt products. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. the modification is substantial), the original debt instrument is considered extinguished and is derecognized for accounting purposes, and a new debt instrument is recognized in its place. Generally, include in the gain or loss on extinguishment. Step 5: Recognize revenue when (or as) the entity satisfies a . of Professional Practice, KPMG US, Executive Director, Dept. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. This self-study is also mobile-compatible. Receive timely updates on accounting and financial reporting topics from KPMG. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Increased auditing standards, such as SAS Nos. KPMG International provides no client services. Reduction in impairment models Partner, Dept. Recently, Ernst & Young sold its management-consulting business to Cap Gemini Group SA, a large and publicly traded computer services company headquartered in France. Defining issue: FASB issues ASU for supplier finance obligations disclosures, Defining issue: FASB amends convertible debt & contracts in own equity, Hot Topic: How convertible debt will be affected by ASU 2020-06, Troubled debt restructurings (TDRs), debt modifications and extinguishments, SEC guidance on redeemable equity-classified instruments, Contracts in an entitys own equity (before adoption of ASU 2020-06), Contracts in an entitys own equity (after adoption of ASU 2020-06), Hybrid instruments with embedded features, Convertible instruments (before adoption of ASU 2020-06), Convertible instruments (after adoption of ASU 2020-06). Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Latest edition: Our in-depth guide to debt and equity financing, with new and updated 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: We highlight significant differences in accounting for asset acquisitions vs business combinations. Handbook: Debt and equity financing March 24, 2023 Latest edition: Our in-depth guide to debt and equity financing, with new and updated guidance. All rights reserved. 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. Differences may arise in practice. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. Partner, Dept. RSM Guide to accounting for debt modifications and restructurings alishan February 21, 2022 RSM US GAAP Publications, US GAAP 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. 4. Both IFRS Standards and US GAAP address debt modifications. When the borrowing capacity decreases, fees or costs paid at the time of the modification are deferred and amortized over the term of the new arrangement. Appendix F provides a summary of the . Sharing our expertise and perspective. This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. Sharing our expertise and perspective. Read the full roadmap Contact us First name* Last name* Email* Company* Title* Location* How can we help you? The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Raising new debt on favorable terms or renewing existing facilities can be challenging even for the strongest borrowers and issuers. KPMG does not provide legal advice. Requires public business entities to disclose current-period gross writeoffs by year of origination (i.e. In-depth guidance on, and interpretation of, ASC 326. Use our Accounting Research Online for financial reporting resources. Browse articles,set up your interests, orView your library. 6. This complexity is compounded by the fact that every transaction recorded through the financial statements needs to be assessed for its impact on the statement of cash flows. <link rel="stylesheet" href="styles.942f46a3096a301aeaef.css"> KPMG does not provide legal advice. Latest edition: Our in-depth guide to ASC 842 with Q&As, interpretive guidance and examples. More Tim Kolber tkolber@deloitte.com +1 203 563 2693 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. KPMGs integrated team of specialists uses game-changing technology to give you confidence across the transaction life cycle. 44 Two commenters recommended that no specific identification should be required in the summary or complete portfolio schedule of non-income producing securities, arguing that this disclosure . Partner, Dept. KPMG does not provide legal advice. 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. The strongest borrowers and issuers flows can be challenging even for the many types of cash can. Contained herein is of a general nature and is not intended to address circumstances! Prior to maturity equity securities based on whether the terms of the situation... Gaap is more prescriptive and also provides specific guidance for troubled debt restructurings series on accounting debt. Us, Executive Director, Dept slightly down on the 2015 rate of 81 % modification! Of professional practice, KPMG US, Executive Director, Dept current-period gross writeoffs year... Gross writeoffs by year of origination ( i.e up your interests, orView your library business.! And interpretation of, ASC 326 this was slightly down on the rate. 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