Latest edition: Our in-depth guide to debt and equity financing, with new and updated guidance. 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 KPMGs integrated team of specialists guides you through the process of optimizing your capital structure in line with your business strategy. KPMG does not provide legal advice. A gain or loss should be recognised in profit or loss for modifications of such financial liabilities that do not result in derecognition. When they are substantially modified (i.e. Our in-depth guide comprises a collection of questions, issues and examples that we believe are relevant for companies thinking about the ways in which climate risk can affect their financial statements. This may be due to a number of reasons, including changes in interest rates, credit rating, or its capital needs. What are my restructuring and recapitalization options. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Entities that have adopted the credit impairment standard (ASC 326). This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. Explore the topics at the Financial Reporting View. (only performed if the 10% quantitative test is not met). The amendments in the ASU respond to feedback receivedduring the post-implementation review of the creditimpairment standard (ASC 326). Please seewww.pwc.com/structurefor further details. Hot Topic: FAQs about FASBs ASU on modified receivables, Companies that hold financial instruments in the scope of the credit losses standard. The debt markets are dynamic and complex. 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. Keywords: Debt, Equity, ASC 470-10, Debt Arrangements, Accounting 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. What the rapidly evolving ESG landscape, including a new International Sustainability Standards Board, means for preparers. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. 4. Yes; early adoption is permitted for an entity that has adopted ASC 326 in any interim period as of the beginning of the fiscal year that includes the interim period. 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. Instruments that encompass a residual interest in the assets of an entity after deducting all of its liabilities are classified as equity. 1 Entities that have not previously adopted ASU 2016-13 will adopt ASU 2022-02 at the same time that they adopt ASU 2016-13. Partner, Dept. 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. Read a newly released guide from @KPMG_US Department of Professional Practice which provides guidance on #accounting for #debt or #equity #financing transactions. Partner, Dept. Under IFRS 91, accounting for a debt modification depends on whether the terms of the original debt agreement have been substantially modified. These may include changes in principal amounts, maturities, interest rates, prepayment options and other contingent payment terms. For income tax purposes, it is important to consider whether a modification of an existing debt constitutes a "significant modification" pursuant to Treas. In this article, we discuss the main differences between the two sets of standards. Latest edition: Our updated guide to CECL, with Q&As, interpretive guidance and examples. Alternatively, a reporting entity may decide to extinguish its debt prior to maturity. Costs and fees incurred in the modification. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. This latest edition includes guidance on ASU 2022-02 (troubled debt restructurings and vintage disclosures), with new interpretations and examples based on experience with companies implementing ASC 326. of Professional Practice, KPMG US. 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. All rights reserved. Chapter 3: Debt modification and extinguishment. Read our cookie policy located at the bottom of our site for more information. Crowe accounting professionals address some FAQs in this insight. 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. In response to feedback on its post-implementation review (PIR) of the classification and measurement requirements in IFRS 9 Financial Instruments, the International Accounting Standards Board (IASB) is proposing to amend IFRS 9 and IFRS 7 Financial Instruments: Disclosures.The proposals include guidance on the classification of financial assets, including those with ESG-linked features. legal fees) which may result in differences in practice. Explore the topics at the Financial Reporting View. Getting the accounting right requires collaboration across the accounting, treasury and legal departments to develop robust internal controls around debt modifications, and sound judgments. kbauer@deloitte.com +1 203 708 4000 A National Office Audit partner with more than 15 years of experience, Kristin leads the revenue recognition subject matter team within the Accounting Standards and Communications group. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. ; Discounts Available for Groups of 3 or More! 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, warrants, and equity: Whats trending in SEC comments, Company name must be at least two characters long. Debt arrangements are often modified, not only when a borrower is in financial difficulty but also to adjust to more favorable market financing conditions; and COVID-19 has caused economic volatility that has resulted in an even greater volume of modifications. 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. Weve organized it by transaction type, making it easier to identify the answers to the common and not so common questions that you may have. 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. 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. Informing your decision-making. We provide new and updated interpretive guidance on applying ASC 230 to crypto assets, pensions, factoring, debt arrangements and cash equivalents. This live webcast will be converted to a CPE-eligible self-study and is available for a nominal fee through KPMG Executive Education. Explore the topics at the Financial Reporting View. US GAAP has specific rules for modifications that affect an embedded conversion option; IFRS 9 is less prescriptive. All rights reserved. Use our Accounting Research Online for financial reporting resources. Conversely, when a modification is non-substantial, the original debt instrument is not extinguished. revise the effective interest rate of the debt). Using Q&As and examples, KPMG provides interpretive guidance on debt and equity financings. 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. IFRS 3R: Impact on earnings - the crucial Q&A for decision-makers Guide aimed at finance directors, financial controllers Each member firm is responsible only for its own acts and omissions, and not those of any other party. Latest edition: Our in-depth guide to accounting for acquisitions of businesses, updated for recent application issues. Receive timely updates on accounting and financial reporting topics from KPMG. The KPMG accounting research website to access additional resources for your financial reporting needs. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Welcome to Viewpoint, the new platform that replaces Inform. KPMG International provides no client services. David Heathcote, Global Head of Debt Advisory and Global Lead Partner. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. Consider removing one of your current favorites in order to to add a new one. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. <link rel="stylesheet" href="styles.942f46a3096a301aeaef.css"> In terms of student enrolments, 2016 saw a reversal of the declining trend of the past few years. Appendix F provides a summary of the . US GAAP has specific rules for the treatment of fees and costs paid for the modification of undrawn line-of-credit or revolving debt arrangements; IFRS 9 does not. 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. Use our Accounting Research Online for financial reporting resources. A listing of podcasts on KPMG Advisory. A reporting entity should also derecognize a debt instrument (and recognize a new one) when a debt modification or exchange is deemed an extinguishment. Both IFRS Standards and US GAAP3use a 10% threshold in the quantitative assessment to determine if a debt modification is substantial. Deloitte's Roadmap Convertible Debt (Before Adoption of ASU 2020-06) provides a comprehensive discussion of the classification, recognition, measurement, presentation, and disclosure guidance that applies to convertible debt instruments. IFRS 9 qualitative assessment does not exist under US GAAP. Browse articles,set up your interests, orView your library. All rights reserved. SEC filers that are not eligible to be smaller reporting companies, Annual and interim periods in fiscal years beginning after Dec 15, 2019, Annual and interim periods in fiscal years beginning after Dec 15, 20221, All other entities, including not-for-profits and employee benefit plans, Permitted as of the beginning of the fiscal year, Permitted for an entity that has adopted ASU 2016-13 as of the beginning of the fiscal year. 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. 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