FASB reconsiders accounting for troubled debt restructuring by creditors

By Ken Tysiac

FASB's accounting guidance for troubled debt restructuring by creditors would be eliminated for organizations that have adopted its credit losses standard, under a proposal the board issued Tuesday that is designed to expand disclosures and improve accounting related to credit losses.

In addition to eliminating the troubled debt restructuring guidance, the proposed amendments would enhance disclosure requirements for loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty.

These changes were proposed because during FASB's post-implementation review of the credit losses standard, investors and others questioned the relevance of the troubled debt restructuring designation and the decision usefulness of disclosures about these modifications.

Some critics said measurement of expected losses under the current expected credit losses (CECL) model already incorporates the forward-looking aspects of the troubled debt restructuring model. They suggested that relevant information for investors would be conveyed better through enhanced disclosures about certain modifications.

Vintage disclosures proposal

The proposed amendments also would require that a public business entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment on leases.

This proposed change is the result of feedback that an illustrative example, which shows how a public business entity might present financing receivable information by year of origination (known as the "vintage disclosures"), includes a line item for gross writeoffs and gross recoveries for each origination year.

FASB was told that it was unclear whether gross writeoffs and recoveries are required to be presented in the vintage disclosures because that information is not listed as a specific disclosure requirement. Meanwhile, numerous investors cited the disclosure of writeoffs as an essential input in their analysis.

FASB is requesting feedback on the proposal by Dec. 23. Comments can be submitted through the board's website or by emailing director@FASB.org.  

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

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