Academic journal article Journal of Accountancy

Responding to the Recent Rise in Loan Modifications, FASB Updated Standards Related to Troubled-Debt Restructuring

Academic journal article Journal of Accountancy

Responding to the Recent Rise in Loan Modifications, FASB Updated Standards Related to Troubled-Debt Restructuring

Article excerpt

Responding to the recent rise in loan modifications, FASB updated standards related to troubled-debt restructuring.

Amendments in the update are aimed at increasing comparability regarding modifications of loans accounted for within pools under ASC Subtopic 310-30, Receivables--Loans and Debt Securities Acquired with Deteriorated Credit Quality.

FASB said differences in practice had developed over whether a loan that is part of a pool of loans accounted for as a single asset should be removed from that pool after a modification that would constitute a troubled-debt restructuring. The objective of the amendments is to address the diversity in practice regarding such transactions.

"In the view of certain entities, accounting for troubled debt restructuring does not apply to individual loans within a pool, and modified loans should remain within the pool," according to the update.

"In the view of other entities, each modified loan should be evaluated against the troubled debt restructuring criteria, and if the loan modification is a troubled debt restructuring, the modified loan should be removed from the pool and accounted for as a separate asset. …

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