Academic journal article Journal of Accountancy

FASB Issued an Exposure Draft That Contains Clarifying Guidance Intended to Improve Consistency and Transparency in Financial Reporting about Troubled Debt Restructurings

Academic journal article Journal of Accountancy

FASB Issued an Exposure Draft That Contains Clarifying Guidance Intended to Improve Consistency and Transparency in Financial Reporting about Troubled Debt Restructurings

Article excerpt

FASB issued an exposure draft that contains clarifying guidance intended to improve consistency and transparency in financial reporting about troubled debt restructurings.

"Investors, regulators and practitioners asked the board to clarify what types of loan modifications should be considered troubled debt restructurings for accounting and disclosure purposes," FASB's Acting Chairman Leslie F. Seidman said in a press release.

FASB said there is diversity in practice in identifying loan modifications that constitute troubled debt restructurings. The Proposed Accounting Standards Update (ASU), Receivables (Topic 310)--Clarifications to Accounting for Troubled Debt Restructurings by Creditors (tinyurl.com/ 2d3hv25), sets forth proposed guidance to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment and for disclosure of troubled debt restructurings.

The amendments would apply to all creditors, both public and nonpublic, that restructure receivables that fall within the scope of FASB Accounting Standards Codification (ASC) Subtopic 310-40, Receivables--Troubled Debt Restructurings by Creditors.

The amendments would preclude a creditor from using the borrower's effective rate test in ASC paragraph 470-60-55-10 in its evaluation of whether a restructuring constitutes a troubled debt restructuring. …

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