The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (Update) No. 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The Update is designed to improve financial reporting by creating greater consistency in the way GAAP is applied for various types of debt restructurings.
The Update clarifies which loan modifications constitute troubled debt restructurings. It is intended 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 loss and for disclosure of troubled debt restructurings.
"The increase in loan modifications caused by the recent economic downturn led investors, regulators, and practitioners to ask the Board to clarify what types of modifications should be considered troubled debt restructurings for accounting and disclosure purposes," states FASB Chairman Leslie F. Seidman. "This Update provides that guidance, resulting in greater consistency and transparency in the reporting of these transactions."
For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. For nonpublic entities, the amendments in the Update are effective for annual periods ending on or after December 15, 2012, including interim periods within that annual period. Early application is permitted.