FASB staff weighs in on debt modifications and restructurings

By Ken Tysiac

FASB’s staff published an educational paper Wednesday that provides guidance to borrowers on how to account for debt modifications and restructurings, which have been common this year as a result of the coronavirus pandemic.

The staff paper gives an overview of the accounting guidance for debt modifications and restructurings, and it also provides examples of common modifications and restructurings. While the guidance is intended to help borrowers perform their accounting correctly, the paper also states that companies should consider the specific facts and circumstances of the modifications and restructurings of their debt to determine the appropriate accounting.

The paper discusses:

  • How to determine whether a borrower is experiencing financial difficulties and whether a lender is granting a concession.
  • Accounting for troubled debt restructurings.
  • Modifications and extinguishments.
  • How to determine whether a substantial modification has occurred.
  • Line-of-credit or revolving debt arrangements.

“Since the onset of the pandemic, many stakeholders have either had to apply guidance on debt restructurings or modifications for the first time or have had to do so more frequently,” FASB Technical Director Hillary Salo said in a news release. “The FASB staff educational paper helps them navigate relevant guidance in these areas and serves as another resource to help stakeholders successfully navigate accounting standards during these difficult times.”

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

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