The Financial Accounting Standards Board (FASB) published Accounting Standards Update on improvements to the credit losses standard (Topic 326); the Update addresses Troubled Debt Restructurings and Vintage Disclosures.
The amendments with respect to the Troubled Debt Restructurings (TDRs) were issued in response to the feedback received from investors and other stakeholders during post-implementation review of the credit losses standard. The amendments in this Update eliminate the recognition and measurement guidance for TDRs and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. These amendments create a single model for loan modification accounting by creditors while providing improved loan modification and write-off disclosures.
The amendments with respect to the Vintage Disclosures were issued in response to the stakeholder feedback regarding inconsistency in the requirement for a public business entity to disclose gross write-offs and gross recoveries by class of financing receivables. The amendments in this Update require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. Investors and other financial statement users observed that disclosing gross write-offs by year of origination provides important information that allows them to better understand changes in the credit quality of an entity’s loan portfolio and underwriting performance.
The amendments in this Update that are related to TDRs affect all entities after they have adopted Update 2016-13. The amendments related to vintage disclosures affect public business entities with investments in financing receivables that have adopted Update 2016-13. For entities that have adopted the amendments in Update 2016-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted the amendments in Update 2016-13, the effective dates for the amendments in this Update are the same as the effective dates in Update 2016-13. Early adoption of the amendments in this Update is permitted if an entity has adopted the amendments in Update 2016-13, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.
Keywords: Americas, US, Banking, Accounting, Topic 326, Troubled Debt Restructuring, Vintage Disclosures, CECL, Financial Instruments, Credit Losses, Credit Risk, IFRS 9, FASB, Headline
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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