Dataline: FASB proposes guidance to assist creditors in identifying trouble debt restructurings (No. 2010-40)

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The Financial Accounting Standard Board recently exposed for comment a proposed Accounting Standard Update that would provide additional guidance to assist lenders in determining whether a restructuring of a receivable constitutes a troubled debt restructuring (TDR). Currently, a restructuring of a receivable constitutes a TDR when the lender, for economic reasons related to the debtor's financial difficulties, grants a concession to the borrower. In that situation, the lender is required to make certain disclosures in its financial statements and the calculation of the allowance for credit losses for that receivable would follow the impairment guidance specific to impaired receivables. The proposed ASU is in response to concerns that additional guidance may be needed to help lenders assess whether a restructuring of a receivable is a TDR. The proposed guidance may cause more restructurings and modifications of receivables to be TDRs. The proposed ASU would apply to all creditors, both public and non-public, that have restructured receivables and would be effective for interim and annual periods ending after June 15, 2011 (e.g., the second quarter of 2011 for calendar year-end companies), with retrospective application to disclosures for restructurings that occurred in prior periods presented. This Dataline discusses the key provisions and scope of the proposed ASU and shares PwC's insight on it.