FASB Issues Standard Addressing Troubled Debt Restructurings, Vintage Disclosures
The Financial Accounting Standards Board (FASB) recently issued an Accounting Standards Update (ASU) intended to improve the decision usefulness of information provided to investors about certain loan refinancings, restructurings and writeoffs.
The new ASU responds to feedback FASB received from investors and other stakeholders during the post-implementation review (PIR) of the credit losses standard. During the PIR, investors and other stakeholders questioned the relevance of the troubled debt restructuring (TDR) designation and the decision usefulness of disclosures about those modifications. Some noted that measurement of expected losses under the CECL model already incorporates losses realized from restructurings that are TDRs and that relevant information for investors would be better conveyed through enhanced disclosures about certain modifications.
In response, the amendments in the new ASU eliminate the accounting guidance for TDRs by creditors that have adopted CECL while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty.
Additionally, the disclosure of gross writeoff information by year of origination was cited by numerous investors as an essential input to their analysis. To address this feedback, the amendments in the new ASU require that a public business entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases.
The ASU, including information on effective dates, is available on the FASB website.