Latest edition: Our Q&As on the FASBs revenue and other income recognition standards in the real estate industry. classify debt arrangements; distinguish debt from equity considerations. of Professional Practice, KPMG US, Executive Director, Dept. david lee garza wife; Locations. share. calculate probability-weighted cash flows considering different scenarios, including the exercise or non-exercise of the call or put options; or. Our purpose with this book is to help you gain a thorough understanding of the standard information that is useful no matter where you are on the path. Increased auditing standards, such as SAS Nos. Our multi-disciplinary approach and deep, practical industry knowledge, skills and capabilities help our clients meet challenges and respond to opportunities. Partner, Dept. Software and SaaS industry overview. 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. All rights reserved. We have created a thought leadership platform to help you address the ever-increasing and complex marketplace challenges and drive inorganic growth in a globally connected economy. 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 This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. i. Our new guide explains the measurement and reporting of GHG emissions through the lens of the Greenhouse Gas Protocol. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. * Use coupon code EARLY23SYMP by July 31, 2023 to save $100 off your registration. Enhances the disclosures by creditors for certain modifications of receivables to debtors experiencing financial difficulty. US GAAP contains prescriptive guidance on how to perform the 10% test. 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. of Professional Practice, KPMG US, Senior Manager, Dept. Sharing our expertise and perspective. The composition of cash and cash equivalents also often raises questions. Browse articles,set up your interests, orView your library. How can I best structure funding to understand and maximize value across all markets? Do the changes make a new or changed term loan substantially different from the old term loan? If you did not attend the live webcast, but are interested in earning CPE credit for participating in this webcast, visitKPMGExecutive Education. This content is copyright protected. 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). Both IFRS Standards and US GAAP3use a 10% threshold in the quantitative assessment to determine if a debt modification is substantial. Navigating the accounting for debt modifications can be challenging. Both IFRS Standards and US GAAP address debt modifications. Publication date: 31 Dec 2022 us PP&E and other assets guide 1.1 This chapter focuses on property, plant, and equipment (PP&E) costs and provides guidance on cost capitalization, including what types of costs are capitalizable and when capitalization should begin. Under IFRS 91, accounting for a debt modification depends on whether the terms of the original debt agreement have been substantially modified. Carry out therapeutic regimens such as behavior modification and personal development programs, under the supervision of special education instructors, psychologists, or speech-language pathologists. 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. KPMG in-depth guide to accounting for software and website costs under ASC 350-40, ASC 350-50 and ASC 985-20. KPMG International entities provide no services to clients. Applicability All companies with debt that could potentially be modified Contents Topics to be discussed include: Troubled debt restructurings Accounting for term debt modifications Extinguishment accounting: the original debt is derecognized and a new debt is recognized. Receive timely updates on accounting and financial reporting topics from KPMG. Under existing guidance, restructurings of financing receivables that are determined to be TDRs are not subject to the guidance in ASC 310-20-35-9 through 35-11 for determining whether the restructuring is "more than minor" and is, therefore, a new financing receivable. Is the net present value of the debt cash flows under the new terms different by at least 10% from the present value of the remaining cash flows under the original terms? Partner, Dept. Explore the topics at the Financial Reporting View. Webcast: Statement of cash flows: Practical issues, Cash, cash equivalents and restricted cash, Securitization and other transfers of financial assets. 2019 - 2023 PwC. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. 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. Costs and fees incurred in the modification. Recognition of expected credit losses, writeoffs and recoveries, Methods to estimate expected credit losses and collective assessment, Historical loss experience, forecasts and reversion, Credit enhancements and practical expedients, Purchased financial assets with credit deterioration, Business combinations and asset acquisitions, Other investments in equity method investees, Specific considerations for insurance entities, commercial entities and trade receivables, Targeted changes foravailable-for-sale debt securities, Presentation, disclosure, effective date and transition. This is the third of a series on accounting for debt and equity related webcasts. Partner, Dept. Informing your decision-making. KPMG does not provide legal advice. #Audit #kpmgfrv This handbook is a guide to accounting for investments in debt and equity securities. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. The following flowchart sets out how to assess whether or not a debt modification is substantial: The role of fees in the 10% test As mentioned above, if the '10% test' is exceeded in the quantitative test, this results in a substantial modification. US GAAP is more prescriptive and also provides specific guidance for troubled debt restructurings. 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 Sharing our expertise and perspective. a partial prepayment), or both. Latest edition: KPMG in-depth guide to accounting for transfers and servicing of financial assets under ASC 860. Latest edition: Applying fair value measurement and disclosure guidance under US GAAP and IFRS Accounting Standards. ; Discounts Available for Groups of 3 or More! In-depth guidance on, and interpretation of, ASC 326. of Professional Practice, KPMG US. Discover what makes RSM the first choice advisor to middle market leaders, globally. 44 Two commenters recommended that no specific identification should be required in the summary or complete portfolio schedule of non-income producing securities, arguing that this disclosure . We walk you through available accounting options so that you can make the choice that is right for you. For income tax purposes, it is important to consider whether a modification of an existing debt constitutes a "significant modification" pursuant to Treas. IFRS 9 provides no specific guidance in such a scenario and each modification is assessed separately. 3. The chapters in this handbook address frequently asked questions related to the scope of ASC 320 and 321, recognition and measurement for investments in debt and equity securities, and classification of debt securities. 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. 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. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. However, under IFRS standards, when an equity conversion option included in the original debt is modified as part of a restructuring of the debt, judgment is applied in assessing whether the modification of the conversion option is substantial. Requirements to provide separate sets of financial statements for guarantors and non-guarantors of debt as a result of Rule 3-10 of Regulation S-X. More Tim Kolber [email protected] +1 203 563 2693 Delivering insights to financial reporting professionals. Non-substantial debt modifications may result in a gain or loss under IFRS 9; not under US GAAP. Improving business performance, turning risk and compliance into opportunities, developing strategies and enhancing value are at the core of what we do for leading organizations. 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. Accordingly, we believe that modifications whose effect is included in the quantitative assessment, and that are not considered substantial based on that assessment, cannot generally be considered substantial on their own from a qualitative perspective. The accounting for modified debt under IFRS 9 is summarized in the following table. the financial liability). Use our Accounting Research Online for financial reporting resources. ; Special pricing is available for KPMG Alumni Please seewww.pwc.com/structurefor further details. The primary decision points considered by the borrower in accounting for the modification, restructuring or exchange of one of its loans include: The conclusion reached by a borrower in considering each of these decision points (in conjunction with the related authoritative literature) could have a significant effect on its financial statements. Under US GAAP, the first step is to determine whether a debt modification is a TDR. Latest edition: Our guide to the implementation of ASC 606 for franchisors. 1.1001-3. Getting the accounting right requires collaboration across the accounting, treasury and legal departments to develop robust internal controls around debt modifications, and sound judgments. Updated: Guidance to help navigate financial statement requirements for acquired businesses. of Professional Practice, KPMG US. All rights reserved. The modification adds or eliminates a substantive conversion option at the date of the modification. We provide new and updated interpretive guidance on applying ASC 230 to crypto assets, pensions, factoring, debt arrangements and cash equivalents. In-depth guide on presentation and disclosure requirements under US GAAP, plus considerations under SEC regulations. Use our Accounting Research Online website for financial reporting resources. All rights reserved. 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. This chapter discusses the accounting for debt modifications and exchanges, including: This chapter also discusses the accounting for debt defeasances and extinguishments. Latest edition: Side-by-side comparison of IFRS Accounting Standards and US GAAP. 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. Circumstances of any particular individual or entity this webcast, but are interested in earning CPE credit participating. Receive timely updates on accounting for a debt modification is a TDR can I best structure funding to understand maximize. To perform the 10 % test of Professional Practice, KPMG US, Executive Director,.. Exchanges, including the exercise or non-exercise of the particular situation is a guide the. Guide to accounting for kpmg debt modification guide debt under IFRS 9 provides no specific in. 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