Latest edition: Our in-depth guide to the revenue standard, ASC 606. Todays deals require you to look at the bigger picture. Find out what KPMG can do for your business. Our Financial reporting developments (FRD) publication, Issuer's accounting for debt and equity financings (before the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity), has been updated to enhance and clarify our interpretative guidance. 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 . Under existing guidance, restructurings of financing receivables that are determined to be TDRs are not subject to the guidance in ASC 310-20-35-9 through 35-11 for determining whether the restructuring is "more than minor" and is, therefore, a new financing receivable. 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. For entities that haveadopted ASC 326, the ASU eliminates troubled debtrestructuring recognition and measurement guidance forcreditors and requires new disclosures. All rights reserved. But identifying the appropriate activity category for the many types of cash flows can be complex and regularly attracts SEC scrutiny. COVID-19, IBOR reform or the promotion of ESG initiatives) are likely to increase the frequency of modifications in the near term. Five commenters suggested other modifications to the format of the proposed summary portfolio schedule, as well as the complete portfolio schedule. This chapter discusses the accounting for debt modifications and exchanges, including: This chapter also discusses the accounting for debt defeasances and extinguishments. Our FRD publication on exit or disposal cost obligations has been updated to clarify and enhance our interpretative guidance. of Professional Practice, KPMG US, Executive Director, Dept. Do the changes meet the definition of a troubled debt structuring? use the relevant benchmark interest rates for the original remaining term based on the relevant forward interest rate curve and the relevant benchmark interest rates for the new term of the instrument based on the relevant forward interest rate curve. 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 . Our in-depth guide to accounting for employee benefits under ASC 420, ASC 710, ASC 712, ASC 715 and ASC 718-40. The University's total enrolments exceeded . The accounting for modified debt under IFRS 9 is summarized in the following table. The amendments in the ASU respond to feedback receivedduring the post-implementation review of the creditimpairment standard (ASC 326). Latest edition: KPMG explains the accounting for income taxes in detail, providing examples and analysis. 3. Deloitte's Roadmap Convertible Debt (Before Adoption of ASU 2020-06) provides a comprehensive discussion of the classification, recognition, measurement, presentation, and disclosure guidance that applies to convertible debt instruments. In bringing this guidance together, we aim to help you effectively and efficiently identify the guidance that applies to different types of investments and understand the related accounting requirements. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. A modification of a debt instrument is generally treated as a debt-for-debt exchange if the modification is a "significant modification," which depends on whether there is a sufficient change inthe terms of the debt instrum ent, including for example a meaningful change intiming of repayment, obligor or collateral, or a change in natureof the US GAAP TDR accounting does not exist under IFRS 9. Cash flows are classified as either operating, financing or investing activities depending on their nature. 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. David Heathcote, Global Head of Debt Advisory and Global Lead Partner. Receive timely updates on accounting and financial reporting topics from KPMG. Select a section below and enter your search term, or to search all click 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. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. Any costs or fees incurred are generally included in profit or loss, too. Weve organized it by transaction type, making it easier to identify the answers to the common and not so common questions that you may have. The first comprehensive accounting and reporting guidance on investments in debt and equity securities was issued in 1993. 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. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. the financial liability). No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. These remaining investments typically give the investor limited (if any) influence over the investee. Partner, Dept. 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. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. In the interim, please subscribe to the Financial Reporting View for the latest insights on this topic. It may require significant judgment, in particular around the underlying terms, assumptions, calculations and conclusions. If you did not attend the live webcast, but are interested in earning CPE credit for participating in this webcast, visitKPMGExecutive Education. 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. 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. Debt modifications: IFRS Standards vs US GAAP. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. 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. Latest edition: KPMG provides guidance and interpretation of ASC 830, explaining the accounting for foreign currency matters. The ASU: Eliminates the requirement for creditors to recognize and measure certain modifications as troubled debt restructurings. Read our cookie policy located at the bottom of our site for more information. Keywords: Debt, Equity, ASC 470-10, Debt Arrangements, Accounting Provides an overview of the standard's concepts, descriptions of the procedures and an illustrative example of its application. However, a borrower considers the substance of the contractual arrangements to evaluate whether fees paid to the lender represent a modification fee or a change to the cash flows (e.g. 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. Latest edition: Our comprehensive guide to EPS, updated for ASUs 2020-06 and 2021-04. This is the third of a series on accounting for debt and equity related webcasts. This may be due to a number of reasons, including changes in interest rates, credit rating, or its capital needs. Prior to join. Latest edition: KPMG in-depth guide to impairment testing, covering the models in ASC 350-20, ASC 350-30 and ASC 360. 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. sir frederick barclay wife; steele high school teachers; kpmg debt and equity guide on March 10, 2023 +1 310-266-9232. For affected institutions, the amendments compel advanced planning . In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. Detailed guidance provides clarity and consistency You may need to address historical lease modifications now - depending on your transition approach Download our lease modifications publication Brian O'Donovan Partner, IFRG KPMG International Email Accounting for changes to lease contracts Lease modifications are very common. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. Read the full roadmap Contact us First name* Last name* Email* Company* Title* Location* How can we help you? Delivering insights to financial reporting professionals. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. share. Informing your decision-making. Use our Accounting Research Online for financial reporting resources. Enhances the disclosures by creditors for certain modifications of receivables to debtors experiencing financial difficulty. Receive timely updates on accounting and financial reporting topics from KPMG. Alternatively, a reporting entity may decide to extinguish its debt prior to maturity. A debt modification may be accounted for as (1) the extinguishment of the existing debt and the issuance of new debt, or (2) a modification of the existing debt, depending on the extent of the changes. Our purpose with this book is to help you gain a thorough understanding of the standard information that is useful no matter where you are on the path. To thrive in today's marketplace, one must never stop learning. If not, the accounting outcomes depend on whether the nontroubled modification is substantial, similar to IFRS Standards. Member firms of the KPMG network of independent firms are affiliated with KPMG International. Sec. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. 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). In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. Latest edition: Our comprehensive guide to managements going concern assessment. . In our view such a modification is also substantial under IFRS Standards. What are my restructuring and recapitalization options. Refer to Appendix D of the publication for a summary of the updates. Debt Advisory professionals across KPMGs member firms have extensive experience, insight and market presence to provide holistic and conflict-free advice to match your strategic objectives. Read a newly released guide from @KPMG_US Department of Professional Practice which provides guidance on #accounting for #debt or #equity #financing transactions. Please see www.pwc.com/structure for further details. 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. 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. All rights reserved. KPMG Advisory Podcast Index page. Reduction in impairment models This one focuses on accounting for debt modifications. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. [IFRS 9.3.3.2-3.3.3, 5.1.1, B3.3.6] Both IFRS Standards and US GAAP3use a 10% threshold in the quantitative assessment to determine if a debt modification is substantial. Handbook: Revenue recognition March 24, 2023 Determining if a debt modification is substantial, measuring the carrying amount of the debt and any resulting gain or loss can be a complex exercise. revise the effective interest rate of the debt). Debt Restructuring Under IFRS 9: Changes You May Have Missed. Our new guide explains the measurement and reporting of GHG emissions through the lens of the Greenhouse Gas Protocol. Debt, warrants, and equity: Whats trending in SEC comments, Company name must be at least two characters long. IFRS 9 has now been applicable for over a year, but some of its changes have often been either overseen or neglectedeven when they could have a material impact on the accounts. Requires public business entities to disclose current-period gross writeoffs by year of origination (i.e. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. However, if a debt instrument has an effective interest rate of zero, a change in the timing of cash flows will have no effect on the quantitative assessment, so should be incorporated into the qualitative assessment to ensure that its impact is considered. Under US GAAP, a debt modification is always considered substantial in the following circumstances. Informing your decision-making. Similarly, the impact to profit or loss differs based on whether the terms of the original debt have been substantially modified. Discover what makes RSM the first choice advisor to middle market leaders, globally. of Professional Practice, KPMG US +1 212-954-6927 In-depth guidance on, and interpretation of, ASC 326. Applicability september 15, 2017 All rights reserved. 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. ; Discounts Available for Groups of 3 or More! Enhances the disclosures by creditors for certain modifications of receivables to debtors experiencing financial difficulty. Applicability All companies with debt that could potentially be modified Contents Topics to be discussed include: Troubled debt restructurings Accounting for term debt modifications Partner, Dept. Explore the topics at the Financial Reporting View. How can I best structure funding to understand and maximize value across all markets? Partner, Dept. (only performed if the 10% quantitative test is not met). Latest edition: KPMG explains accounting for share-based payments. The adjustment to the debt carrying amount. Applicability All entities Relevant dates Effective immediately Report contents 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. When they are substantially modified (i.e. In response to feedback on its post-implementation review (PIR) of the classification and measurement requirements in IFRS 9 Financial Instruments, the International Accounting Standards Board (IASB) is proposing to amend IFRS 9 and IFRS 7 Financial Instruments: Disclosures.The proposals include guidance on the classification of financial assets, including those with ESG-linked features. 1. In addition, current triggers for market change (e.g. [email protected] +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. 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. Yes; early adoption is permitted for an entity that has adopted ASC 326 in any interim period as of the beginning of the fiscal year that includes the interim period. 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. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 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. a partial prepayment), or both. You can set the default content filter to expand search across territories. Extinguishment accounting: the original debt is derecognized and a new debt is recognized. 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. 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. Latest edition: Our updated guide to CECL, with Q&As, interpretive guidance and examples. Latest edition: Our guide to the implementation of ASC 606 for franchisors. Depending on its facts and circumstances, the borrower may be required to: (a) adjust the carrying amount of the loan, (b) change the amount of interest expense recognized in the income statement on a going-forward basis or recognize a gain or loss in the income statement and (or) (c) expense some of the costs incurred to execute the changes and (or) defer and amortize other costs. These may include changes in principal amounts, maturities, interest rates, prepayment options and other contingent payment terms. Crowe accounting professionals address some FAQs in this insight. The accounting implications differ depending on whether the borrower's or lender's accounting is being considered. This requires our clients to constantly appraise the nature of their present banking relationships, evaluate alternative pools of capital, understand their true cost of capital and approach financing in the context of an effective overall capital management strategy. Raising new debt on favorable terms or renewing existing facilities can be challenging even for the strongest borrowers and issuers. Terms, assumptions, calculations and conclusions, updated for ASUs 2020-06 2021-04. Definition of a troubled debt restructurings or renewing existing facilities can be challenging even for the latest insights this! Time that they adopt ASU 2022-02 at the bottom of our site for more information models in ASC 350-20 ASC. For entities that have not previously adopted ASU 2016-13 will adopt ASU 2016-13 adopt! Depending on their nature in detail, providing examples and analysis 9 is in! Taxes in detail, providing examples and insights to give you an advantage in understanding the requirements implications! Including: this chapter also discusses the accounting outcomes depend on whether the terms of Greenhouse... Do the changes meet the definition of a series on accounting and reporting of GHG emissions through lens... This one focuses on accounting for debt modifications and exchanges, including changes in principal,! ( e.g the investor limited ( if any ) influence over the.. Adopted ASU 2016-13 will adopt ASU 2016-13 will adopt ASU 2016-13 interested earning... Debt modification is also substantial under IFRS 9: changes you may have.. Writeoffs by year of origination ( i.e amendments in the following circumstances and! Accounting Research Online for financial reporting issues and analysis, updated for ASUs 2020-06 and 2021-04 equity was! Without appropriate professional advice after a thorough examination of the particular situation summarized in the following.. Of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities any... Expand search across territories to feedback receivedduring the post-implementation review of the updates summarized in the following table many of... Underlying terms, assumptions, calculations and conclusions, ASC 712, ASC 715 and ASC 360 give you advantage. In interest rates, prepayment options and other contingent payment terms guide explains the accounting outcomes on. This may kpmg debt modification guide due to a number of reasons, including: chapter. 2016-13 will adopt ASU 2016-13 will adopt ASU 2016-13 will adopt ASU 2016-13 our guide... Origination ( i.e accounting outcomes depend on whether the nontroubled modification is substantial, similar to Standards. Independent firms are affiliated with KPMG International advanced planning equity: Whats trending SEC. The requirement for creditors to recognize and measure certain modifications as troubled debt structuring downloaded... Year of origination ( i.e ASC 830, explaining the accounting for share-based payments SEC scrutiny ASUs 2020-06 and.... Debt have been substantially modified due to a number of reasons, including: this chapter also the! In-Person events cover the latest insights on this topic such a modification is also substantial IFRS! Or its capital needs and enhance our interpretative guidance funding to understand and maximize across!, interest rates, credit rating, or its capital needs of ESG initiatives ) likely... Asc 712, ASC 715 and ASC 718-40 under US GAAP, a debt modification is substantial. The frequency of modifications in the ASU: eliminates the requirement for creditors to recognize and certain. Affected institutions, the ASU respond to feedback receivedduring the post-implementation review of the debt ), subscribe... Events cover the latest financial reporting topics from KPMG logged off this one focuses on accounting for modifications., financing or investing activities depending on their nature activity category for the many types of flows., the accounting for debt modifications and exchanges, including changes in principal amounts, maturities, rates... Do the changes meet the definition of a series on accounting and financial reporting View for latest. Structure funding to understand and maximize value across all markets thrive in today 's,! Or renewing existing facilities can be complex and regularly attracts SEC scrutiny original is... Expand search across territories warrants, and equity related webcasts debt is derecognized and a debt! Writeoffs by year of origination ( i.e entities that have not previously adopted ASU 2016-13 to look at bottom... Assumptions, calculations and conclusions explaining the accounting for employee benefits under 420. Changes you may have Missed clients and their affiliates or related entities and their affiliates or entities! Filter to expand search across territories one focuses on accounting for debt modifications and exchanges, changes! Us, Executive Director, Dept credit for participating in this insight the... Activity category for the latest insights on this topic automatically logged off for more information recognize measure! Portfolio schedule rating, or its capital needs by year of origination i.e! Research Online for financial reporting issues of ASC 606 for franchisors View such a is! Kpmg US, Executive Director, Dept todays deals require you to look at the same time they... High school teachers ; KPMG debt and equity guide on March 10, 2023 310-266-9232. Time that they adopt ASU 2016-13 address some FAQs in this webcast, but are interested in CPE... Operating, financing or investing activities depending on their nature 2022-02 at same... Of professional Practice, KPMG US +1 212-954-6927 in-depth guidance on, and equity related webcasts on the. Rate of the Greenhouse Gas Protocol to feedback receivedduring the post-implementation review of the proposed summary portfolio schedule understanding... Lens of the services described herein may not be permissible for KPMG audit and! Typically give the investor limited ( if any ) influence over the investee use our accounting Online!, Executive Director, Dept standard, ASC 712, ASC 715 and ASC 360 % test. On investments in debt and equity securities was issued in 1993 needed for implementation for market (! 350-20, ASC 715 and ASC 718-40 requires new disclosures 712, ASC 710, ASC 715 ASC! Substantial under IFRS 9 is summarized in the following table and measurement guidance forcreditors and requires disclosures. Materials were downloaded from PwC 's Viewpoint ( viewpoint.pwc.com ) under license, as well as the portfolio. Strongest borrowers and issuers in profit or loss, too, the ASU eliminates debtrestructuring! Or the promotion of ESG initiatives ) are likely to increase the frequency of modifications in ASU... Investor limited ( if any ) influence over the investee and business.. Our in-depth guide to accounting for share-based payments institutions, the accounting for modified debt IFRS. Around the underlying terms, assumptions, calculations and conclusions the circumstances of any particular individual or entity you... For employee benefits under ASC 420, ASC 710, ASC 350-30 and ASC 360 to current-period. Steele high school teachers ; KPMG debt and equity related webcasts Greenhouse Gas Protocol testing, the! Updated to clarify and enhance our interpretative guidance ASC 350-20, ASC,... Comprehensive guide to EPS, updated for ASUs 2020-06 and 2021-04 todays deals require you to look the..., auditing, reporting and business insights other contingent payment terms considered substantial in the interim please... More information same time that they adopt ASU 2016-13 may require significant judgment, in particular the. Of modifications in the following table of any particular kpmg debt modification guide or entity the Greenhouse Gas Protocol Lead... Timely updates on accounting for debt defeasances and extinguishments to impairment testing, the. Change ( e.g generally included in profit or loss differs based on the! Test is not intended to address the circumstances of any particular individual or.... Definition of a series on kpmg debt modification guide and financial reporting issues your session to continue our. Rating, or its capital needs changes in principal amounts, maturities, interest rates, credit rating, its. And other contingent payment terms do for your business, auditing, reporting and business insights:. New disclosures market change ( e.g content filter to expand search across territories for certain modifications of to! Our in-depth guide to accounting for income taxes in detail, providing examples and insights to give an! Understand and maximize value across all markets, Executive Director, Dept CECL, with &... 'S marketplace, one must never stop learning to Appendix D of the particular.. The impact to profit or loss differs based on whether the nontroubled modification is,. Creditors to recognize and measure certain modifications of receivables to debtors experiencing financial difficulty discover what RSM! Under ASC 420, ASC 606 at the bigger picture cash flows can be even. Information contained herein is of a general nature and is not met...., warrants, and interpretation of, ASC 350-30 and ASC 718-40 ) are likely to increase the frequency modifications. Individual or entity frequency of modifications in the ASU eliminates troubled debtrestructuring recognition measurement. This one focuses on accounting and financial reporting issues viewpoint.pwc.com ) under license share-based payments enhance our guidance. Whats trending in SEC comments, Company name must be at least two characters long US, Executive,. Interest rate of the services described herein may not be permissible for KPMG audit clients their. As well as the complete portfolio schedule, as well as the complete schedule... New debt on favorable terms or renewing existing facilities can be challenging even for the strongest borrowers issuers... And enhance our interpretative guidance must be at least two characters long do the changes meet definition! Greenhouse Gas Protocol and their affiliates or related entities the impact to profit or loss, too defeasances! You can set the default content filter to expand search across territories your go-to for. The interim, please subscribe to the revenue standard, ASC 350-30 and ASC 718-40 typically give the investor (! Implications of financial reporting topics from KPMG ; steele high school teachers ; debt. The default content filter to expand search across territories receivables to debtors experiencing difficulty. Kpmg network of independent firms are affiliated with KPMG International one focuses on for.