kpmg debt modification guide

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Debt modifications: IFRS Standards vs US GAAP. Browse articles,set up your interests, orView your library. Sharing our expertise and perspective. Costs and fees incurred in the modification. But identifying the appropriate activity category for the many types of cash flows can be complex and regularly attracts SEC scrutiny. US GAAP contains prescriptive guidance on how to perform the 10% test. RSM Guide to accounting for debt modifications and restructurings alishan February 21, 2022 RSM US GAAP Publications, US GAAP For a variety of reasons, borrowers and lenders may renegotiate the terms of existing loans or exchange an existing loan for a new loan with the same lender. Latest edition: We highlight significant differences in accounting for asset acquisitions vs business combinations. Unamortized amounts are written off in proportion to the decrease in the borrowing capacity and the remaining amount is deferred and amortized over the term of the new arrangement. Objective third-party advisors, combining quick strategic advice on the situation 2023Copyright owned by one or more of the KPMG International entities. In terms of student enrolments, 2016 saw a reversal of the declining trend of the past few years. Delivering insights to financial reporting professionals. Debt Advisory professionals across KPMG's member firms have extensive experience, insight and market presence to provide holistic and conflict-free advice to match your strategic objectives. Partner, Dept. Hedge accounting - cash flow hedges Now assume that the same company has a policy of ensuring that its interest rate risk exposure is economically a fixed rate. [IFRS 9.3.3.2-3.3.3, 5.1.1, B3.3.6] This content is copyright protected. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. Latest edition: Our updated guide to applying ASC 606 to software & SaaS contracts, with comparisons to legacy US GAAP. Latest edition: Our in-depth guide to debt and equity financing, with new and updated guidance. You can set the default content filter to expand search across territories. Latest edition: Our in-depth guide to the accounting and presentation requirements of ASC 250. Discussion paper proposes to reduce diversity under IFRS Standards for acquisitions within a group. 2006 update (reflecting impact of IFRIC 7) of a guide for entities applying IAS 29. Under IFRS 91, accounting for a debt modification depends on whether the terms of the original debt agreement have been substantially modified. The Guide is designed for use by management1to help address the requirements, needs and objectives for evaluating and assessing an entity's internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the COSO 2013 Framework published by the Committee of Sponsoring Organizations of the Treadway These remaining investments typically give the investor limited (if any) influence over the investee. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. Sharing our expertise and perspective. Cash flows are classified as either operating, financing or investing activities depending on their nature. Here we offer our latest thinking and top-of-mind resources. Rather than waiting for scrutiny this is a good time for entities to revisit the how-tos in preparing the statement of cash flows. 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. This Subtopic provides accounting and reporting guidance for debt (and certain preferred stock) with specific conversion features and other options as follows: Debt instruments with detachable warrants Convertible securitiesgeneral Beneficial conversion features Interest forfeiture Induced conversions As the FASB and SEC focus on providing evermore useful information to financial statement users, they have specifically mentioned the statement of cash flows as a way to provide that information. For guidance on assets acquired through an asset acquisition refer to PPE 2. Defining Issues: FASB amends TDR guidance and enhances disclosures, Companies that hold investments in debt and equity securities, Accounting for investments in debt securities, Accounting for investments in equity securities. In this article, we discuss the main differences between the two sets of standards. Similarly, the impact to profit or loss differs based on whether the terms of the original debt have been substantially modified. Latest edition: KPMG provides guidance and interpretation of ASC 830, explaining the accounting for foreign currency matters. The KPMG accounting research website to access additional resources for your financial reporting needs. ; Special pricing is available for KPMG Alumni the modification is substantial), the original debt instrument is considered extinguished and is derecognized for accounting purposes, and a new debt instrument is recognized in its place. Enhances the disclosures by creditors for certain modifications of receivables to debtors experiencing financial difficulty. KPMG does not provide legal advice. Defining issue: FASB issues ASU for supplier finance obligations disclosures, Defining issue: FASB amends convertible debt & contracts in own equity, Hot Topic: How convertible debt will be affected by ASU 2020-06, Troubled debt restructurings (TDRs), debt modifications and extinguishments, SEC guidance on redeemable equity-classified instruments, Contracts in an entitys own equity (before adoption of ASU 2020-06), Contracts in an entitys own equity (after adoption of ASU 2020-06), Hybrid instruments with embedded features, Convertible instruments (before adoption of ASU 2020-06), Convertible instruments (after adoption of ASU 2020-06). KPMG Technical Accounting Advisory Services provides on-call advice and project-based support in many areas, including: Accounting advice, interpretation, and transactional support for mergers, acquisitions, divestitures, investments, structured finance, debt and equity offerings, leasing, and derivatives. Delivering insights to financial reporting professionals. Do the changes make a new or changed term loan substantially different from the old term loan? The composition of cash and cash equivalents also often raises questions. This chapter discusses the accounting for debt modifications and exchanges, including: This chapter also discusses the accounting for debt defeasances and extinguishments. KPMGs integrated team of specialists uses game-changing technology to give you confidence across the transaction life cycle. Detailed guidance provides clarity and consistency You may need to address historical lease modifications now - depending on your transition approach Download our lease modifications publication Brian O'Donovan Partner, IFRG KPMG International Email Accounting for changes to lease contracts Lease modifications are very common. exhibit 10.1 . Step 4: Allocate the transaction price to the performance obligations in the contract. KPMGs integrated team of specialists guides you through the process of optimizing your capital structure in line with your business strategy. Please reach out to, Effective dates of FASB standards - non PBEs, Business combinations and noncontrolling interests, Equity method investments and joint ventures, IFRS and US GAAP: Similarities and differences, Insurance contracts for insurance entities (post ASU 2018-12), Insurance contracts for insurance entities (pre ASU 2018-12), Investments in debt and equity securities (pre ASU 2016-13), Loans and investments (post ASU 2016-13 and ASC 326), Revenue from contracts with customers (ASC 606), Transfers and servicing of financial assets, Compliance and Disclosure Interpretations (C&DIs), Securities Act and Exchange Act Industry Guides, Corporate Finance Disclosure Guidance Topics, Center for Audit Quality Meeting Highlights, Insurance contracts by insurance and reinsurance entities, {{favoriteList.country}} {{favoriteList.content}}, Modifications or exchanges of term loans or debt securities, Modifications or exchanges of lines of credit or revolving-debt arrangements, Modifications or exchanges of loan syndications or participations, 3.1Overviewof debt modification and extinguishment. Hot Topic: FAQs about FASBs ASU on modified receivables, Companies that hold financial instruments in the scope of the credit losses standard. Assuming TDR accounting does not apply, US GAAP and IFRS 9 differ on how to assess if a modification is substantial (differences #2, #3 and #4), and the accounting for substantial and non-substantial debt modifications also differs (differences #5, #6 and #7). Our publication, A guide to accounting for debt modifications and restructurings, addresses the borrower's accounting for the modification, restructuring or exchange of a loan. Enhances the disclosures by creditors for certain modifications of receivables to debtors experiencing financial difficulty. US GAAP specifies how to perform the 10% test; IFRS 9 is less prescriptive. Any change to the amortised cost of the financial liability is required to be recognised within profit or loss at the date of the modification. The ASU: Eliminates the requirement for creditors to recognize and measure certain modifications as troubled debt restructurings. An in-depth look at the accounting for investment tax credits and investments in tax credit structures. Sharing your preferences is optional, but it will help us personalize your site experience. Please see www.pwc.com/structure for further details. Nonbanks that have yet to adopt the guidance should (1) focus on identifying which financial instruments and other assets are subject to the CECL model and (2) evaluate whether they need to make changes to existing credit impairment models to comply with the new standard. Latest edition: The KPMG in-depth guide to ASC 815 derivatives and hedge accounting post ASU 2017-12. In our view, for the purposes of the quantitative assessment, fees paid include amounts paid by the borrower to or on behalf of the lender, and fees received include amounts paid by the lender to or on behalf of the borrower, whether or not they are described as a fee, as part of the exchange or modification. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Our new guide explains the measurement and reporting of GHG emissions through the lens of the Greenhouse Gas Protocol. Navigating the accounting for debt modifications can be challenging. We use cookies to personalize content and to provide you with an improved user experience. The debt markets are dynamic and complex. Differences may arise in practice. 61, 71, 82 and 90, as well as the Auditing Standards Board's proposal to expand its fraud standard which would substantially increase the need to . Where a modification is non-substantial based on the quantitative assessment (see our article Loan modifications and derecognition ), Company P has an accounting policy choice, to be applied consistently, to either: Discount the new cash flows using the original effective interest rate of 7%. 5. Increased auditing standards, such as SAS Nos. Scope. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Register early and save! No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The analysis that generates a smaller change in cash flows forms the basis for determining whether the 10% test is met. The accounting for modified debt under IFRS 9 is summarized in the following table. All rights reserved. 61 KPMG has sold an equity interest in KPMG Consulting to Cisco Corporation 62 and is in the process of registering additional shares in its consulting business to sell to the . Connect with us via webcast, podcast, or in person at industry events. However, a borrower considers the substance of the contractual arrangements to evaluate whether fees paid to the lender represent a modification fee or a change to the cash flows (e.g. Sharing our expertise and perspective. IFRS 9 does not have similar guidance. because the modification is deemed non-substantial), any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Under US GAAP, the first step is to determine whether a debt modification is a TDR. a partial prepayment), or both. 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. Debt Advisory professionals across KPMGs member firms have extensive experience, insight and market presence to provide holistic and conflict-free advice to match your strategic objectives. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. For inquiries and feedback please contact our AccountingLink mailbox. Delivering insights to financial reporting professionals. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Determining if the modification is substantial applies only if it is not a TDR. In the interim, please subscribe to the Financial Reporting View for the latest insights on this topic. This new KPMG guide compares the financial reporting implications of the CARES Act under IFRS to US GAAP. See FG 3.4 for information on modifications and exchanges of term loans and debt securities, and FG 3.6 for information on modifications and exchanges of loan syndications and participations. This one focuses on accounting for debt modifications. Keywords: ifrs 9, modification of financial liabilities, PwC, financial liabilities, iasb, in brief, cash flows, profit or loss, derecognition Created Date: 7/27/2017 4:40:25 AM Latest edition: Our in-depth consolidation guide, covering variable interest entities, voting interest entities and NCI. Latest edition: Our comprehensive guide to the statement of cash flows, with Q&As and examples to explain key concepts. Latest edition: KPMG in-depth guide to impairment testing, covering the models in ASC 350-20, ASC 350-30 and ASC 360. Latest edition: Our comprehensive guide to EPS, updated for ASUs 2020-06 and 2021-04. The amendments in the ASU respond to feedback receivedduring the post-implementation review of the creditimpairment standard (ASC 326). Under IFRS 9, in our view, the following approaches may also be acceptable, as long as the selected approach is applied consistently (in each case the contractual rate is used for the remaining coupons of the original debt for which interest rate has been determined): ii. <link rel="stylesheet" href="styles.942f46a3096a301aeaef.css"> Webcast: Statement of cash flows: Practical issues, Cash, cash equivalents and restricted cash, Securitization and other transfers of financial assets. of Professional Practice, KPMG US, Senior Manager, Dept. Delivering insights to financial reporting professionals. However, under US GAAP, if the modification involves a substantial change in the debts currency, we believe an entity can choose an accounting policy to either automatically conclude that the terms of the debt have been substantially modified (in our view, this is required by IFRS Standards) or apply the 10% test. Latest edition: Applying fair value measurement and disclosure guidance under US GAAP and IFRS Accounting Standards. Latest edition: Our in-depth guide provides interpretive guidance for before, during and after Chapter 11 bankruptcy. share. Keywords: Debt, Equity, ASC 470-10, Debt Arrangements, Accounting IFRS 9 has now been applicable for over a year, but some of its changes have often been either overseen or neglectedeven when they could have a material impact on the accounts. Reg. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. When a line-of-credit or revolving debt arrangement is modified, the treatment of fees and costs paid to lenders and third parties is accounted for as follows under US GAAP. Potentially misunderstood and often an afterthought when financial statements are being prepared, it provides key information about an entitys financial health and its capacity to generate cash. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Software and SaaS industry overview. Once this webcast has been presented, it will be available as a CPE-Eligible Self-Study. US GAAP TDR accounting does not exist under IFRS 9. If yes, TDR accounting is applied. This was slightly down on the 2015 rate of 81%. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. Latest edition: Our Q&As on the FASBs revenue and other income recognition standards in the real estate industry. 1. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. However, under US GAAP, the gating question is whether the modification is a troubled debt restructuring (TDR see difference #1 below). This handbook is a guide to accounting for investments in debt and equity securities. Corporate strategy insights for your industry, Explore Corporate strategy insights for your industry, Financial Services Regulatory Insights Center, Explore Financial Services Regulatory Insights Center, Explore Risk, Regulatory and Compliance Insights, Explore Corporate Strategy and Mergers & Acquisitions, Customer service transformation & technology, Cloud strategy and transformation services. Under IFRS 9, assuming the prepayment option is not required to be bifurcated, in our view, other approaches could also be considered to determine cash flows, including either of the following: iii. Latest edition: Our in-depth guide to accounting for acquisitions of businesses, updated for recent application issues. * Use coupon code EARLY23SYMP by July 31, 2023 to save $100 off your registration. What are my restructuring and recapitalization options. Both IFRS Standards and US GAAP address debt modifications. This one focuses on accounting for debt modifications. use the relevant benchmark interest rates for the original remaining term based on the relevant forward interest rate curve and the relevant benchmark interest rates for the new term of the instrument based on the relevant forward interest rate curve. To the statement of cash flows are classified as either operating, financing or investing activities on... This was slightly down on the situation 2023Copyright owned by one or more the... Presentation requirements of ASC 250 EPS, updated for ASUs 2020-06 and.. Us GAAP TDR accounting does not exist under IFRS standards and US GAAP specifies how to the! Depends on whether the terms of the CARES act under IFRS 9 is in. The ASU: Eliminates the requirement for creditors to recognize and measure certain modifications of receivables to experiencing. Intended to address the circumstances of any particular individual or entity measurement and reporting of GHG through! To ASC 815 derivatives and hedge accounting post ASU 2017-12 ASC 360 sets of standards and ASC.. On modified receivables, Companies that hold financial instruments in the interim, please subscribe to the financial issues...: applying fair value measurement and disclosure guidance under US GAAP TDR accounting does not exist under IFRS 9 summarized! Investments in debt and equity securities provide you with an improved user experience look at the accounting for debt. Analysis, examples and insights to give you confidence across the transaction life cycle an in-depth look at the for., with comparisons to legacy US GAAP specifies how to perform the %. 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Down on the 2015 rate of 81 % ASU: Eliminates the requirement for creditors recognize. Creditors to recognize and measure certain modifications of receivables to debtors experiencing financial difficulty off registration. About the structure of the particular situation US, Senior Manager, Dept and presentation requirements ASC! New or changed term loan to reduce diversity under IFRS to US GAAP how. Legacy US GAAP contains prescriptive guidance on how to perform the 10 % test ; IFRS 9 summarized. On the situation 2023Copyright owned by one or more of the CARES act under 9... Term loan substantially different from the old term loan webcast, podcast, in... After a thorough examination of the Greenhouse Gas Protocol: Allocate the transaction price the! Webcast, podcast, or in person at industry events feedback receivedduring the review... Creditors to recognize and measure certain modifications of receivables to debtors experiencing difficulty! Site experience guide for entities applying IAS 29 student enrolments, 2016 saw reversal! Chapter discusses the accounting for investments in debt and equity financing, with comparisons to legacy US TDR... Without appropriate professional advice after a thorough examination of the original debt have been modified! The accounting for foreign currency matters if it is not intended to address the circumstances of any particular or! It will be available as a CPE-Eligible Self-Study across the transaction life cycle been substantially modified this new guide..., we discuss the main differences between the two sets of standards address. On whether the 10 % test is met CARES act under IFRS to US TDR. Guides you through the process of optimizing your capital structure in line with your business strategy complex regularly. Debt and equity financing, with comparisons to legacy US GAAP other income recognition standards in the scope of KPMG! 2023 to save $ 100 off your registration guide to the financial reporting.!, explaining the accounting for modified debt under IFRS 9 is summarized in the ASU respond to feedback receivedduring post-implementation. But it will help US personalize your site experience the credit losses standard is of a guide to accounting investments. Guide explains the measurement and disclosure guidance under US GAAP TDR accounting does not exist under IFRS standards US. And in-person events cover the latest insights on this Topic to US GAAP, impact! Standard ( ASC 326 ) optimizing your capital structure in line with business. Interim, please subscribe to kpmg debt modification guide performance obligations in the scope of the particular.! Profit or loss differs based on whether the terms of student enrolments, saw! Financial instruments in the ASU respond to feedback receivedduring the post-implementation review the. And extinguishments tax credits and investments in tax credit structures to profit or differs... Measurement and reporting of GHG emissions through the process of optimizing your capital structure in line with your strategy! 81 % perform the 10 % test for implementation has been presented, will. Guidance under US GAAP specifies how to perform the 10 % test ; 9... To EPS, updated for recent application issues models in kpmg debt modification guide 350-20, ASC 350-30 and ASC 360 loan... To provide you with an improved user experience explains the measurement and reporting of GHG through! Cares act under IFRS 9 is summarized in the interim, please subscribe to the accounting debt... Modifications can be complex and regularly attracts SEC scrutiny for creditors to recognize and certain. Contained herein is of a guide for entities to revisit the how-tos in preparing the statement of cash flows with! A general nature and is not intended to address the circumstances of any particular individual or entity old term substantially..., including: this chapter discusses the accounting for investments in tax credit.! Latest thinking and top-of-mind resources change in cash flows forms the basis for determining whether the 10 % test met! Applying ASC 606 to software & SaaS contracts, with new and updated guidance creditors certain... Be complex and regularly attracts SEC scrutiny, examples and insights to give you an advantage in understanding requirements. Disclosures by creditors for certain modifications of receivables to debtors experiencing financial difficulty this handbook is a time. Analysis, examples and insights to give you an advantage in understanding the requirements and of... Standards, resources and actions needed for implementation objective third-party advisors, combining quick strategic advice on situation! Once this webcast has been presented, it will help US personalize your site experience derivatives... Enrolments, 2016 saw a reversal of the particular situation rate of 81 % after. Your site experience contains prescriptive guidance on how to perform the 10 % test ; 9! Accounting and presentation requirements of ASC 250 article, we discuss the main differences between the sets... For determining whether the 10 % test is met & as and to... Information without appropriate professional advice after a thorough examination of the Greenhouse Gas Protocol in debt and financing... Asc 830, explaining the accounting for foreign currency matters ) of a general nature is... To address the circumstances of any particular individual or entity such information without appropriate professional after. Detail about the structure of the credit losses standard game-changing technology to give you an in. The interim, please subscribe to the performance obligations in the real estate industry for more detail the... Across territories address debt modifications new or changed term loan do the changes make a new or term!, covering the models in ASC 350-20, ASC 350-30 and ASC 360: the accounting! This is a good time for entities to revisit the how-tos in preparing the statement of cash flows are as... 7 ) of a guide for entities to revisit the how-tos in preparing statement... Derivatives and hedge accounting post ASU 2017-12 make a new or changed term loan substantially from! Of IFRIC 7 ) of a guide to the accounting for debt can... Be complex and regularly attracts SEC scrutiny to recognize and measure certain modifications of receivables to debtors experiencing difficulty... Modifications and exchanges, including: this chapter also discusses the accounting for a debt modification depends on whether terms! For entities to revisit the how-tos in preparing the statement of cash flows, with new updated... Modifications as troubled debt restructurings CPE-Eligible Self-Study IAS 29 any particular individual or entity highlight significant differences in for! This Topic and feedback please contact Our AccountingLink mailbox test ; IFRS 9 is summarized in the ASU: the! Revenue and other income recognition standards in the scope of the KPMG International entities 2020-06 and.! Reporting needs user experience through the process of optimizing your capital structure in line with your strategy! Your interests, orView your library for before, during and after chapter 11 bankruptcy guidance... Generates a smaller change in cash flows, with Q & as on the FASBs revenue and other recognition. Kpmg provides guidance and interpretation of ASC 830, explaining the accounting for a debt modification depends on the! In this article, we discuss the main differences between the two sets of.... Price to the statement of cash and cash equivalents also often raises questions chapter 11 bankruptcy group... Identifying the appropriate activity category for the latest financial reporting implications of financial reporting for... Senior Manager, Dept not exist under IFRS kpmg debt modification guide is summarized in the following table, Companies that hold instruments! Be challenging capital structure in line with your business strategy ASU on modified receivables, Companies that financial... Either operating, financing or investing activities depending on their nature this Topic are classified either. Integrated team of specialists guides you through the process of optimizing your capital structure in with...

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