Dataline: Troubled Debt Restructurings -- FASB issues clarifying guidance for creditors' evaluations of whether a restructuring is a troubled debt restructuring (No. 2011-18)

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As a result of the economic environment, many lenders are modifying receivables, loans, and debt agreements as part of their credit management strategies (e.g., changing interest rates, modifying collateral provisions, deferring or forgiving payments, and extending maturities). Lenders are required to evaluate the accounting impact of such modifications and disclose these activities in their financial statements. Under current US accounting rules, a restructuring of debt constitutes a troubled debt restructuring(TDR) when the lender, for economic reasons related to the debtor’s financial difficulties, grants a concession to the borrower. Until now, there was not a lot of guidance in the creditor’s accounting literature regarding those criteria. Some lenders were relying on the debtor’s accounting literature for guidance.To promote consistency in the accounting by lending institutions, on April 4, 2011 the FASB issued Accounting Standard Update No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (the ASU). The ASU provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable constitutes a troubled debt restructuring. This PwC Dataline discusses the key provisions of the new guidance and offers our observations.