Partner, Accounting Advisory Services, KPMG US. Differences may arise in practice. i. Use our Accounting Research Online for financial reporting resources. Applicability Latest edition: KPMG in-depth guide to impairment testing, covering the models in ASC 350-20, ASC 350-30 and ASC 360. In-depth guidance on, and interpretation of, ASC 326. CPE eligible replays now available. Latest edition: Our updated guide for long-duration contracts, with Q&As, interpretive guidance and examples. Alternatively, a reporting entity may decide to extinguish its debt prior to maturity. Gain access to personalized content based on your interests by signing up today. 61 KPMG has sold an equity interest in KPMG Consulting to Cisco Corporation 62 and is in the process of registering additional shares in its consulting business to sell to the . A reporting entity should also derecognize a debt instrument (and recognize a new one) when a debt modification or exchange is deemed an extinguishment. 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. 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. More Tim Kolber tkolber@deloitte.com +1 203 563 2693 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. You can set the default content filter to expand search across territories. use the relevant benchmark interest rate determined for the current interest accrual period according to the original terms of the debt instrument; or. Informing your decision-making. revise the effective interest rate of the debt). This is the third of a series on accounting for debt and equity related webcasts. For guidance on assets acquired through an asset acquisition refer to PPE 2. 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. Once this webcast has been presented, it will be available as a CPE-Eligible Self-Study. Sharing our expertise and perspective. of Professional Practice, KPMG US. A reporting entity may modify the terms of its outstanding debt by restructuring its terms or by exchanging one debt instrument for another. Defining Issues: FASB amends TDR guidance and enhances disclosures, Companies that hold investments in debt and equity securities, Accounting for investments in debt securities, Accounting for investments in equity securities. Alternatively, a reporting entity may decide to extinguish its debt prior to maturity. Our in-depth guide to the accounting, presentation and disclosures of investments in debt and equity securities. of Professional Practice, KPMG US +1 212-954-6927 In-depth guidance on, and interpretation of, ASC 326. Do the changes meet the definition of a troubled debt structuring? Our in-depth guide to accounting for R&D costs and R&D funding arrangements. Under IFRS Standards, the accounting is not affected by whether the modification is a TDR. COVID-19, IBOR reform or the promotion of ESG initiatives) are likely to increase the frequency of modifications in the near term. Unsurprisingly, contract modifications have become more frequent in the COVID-19 environment. Receive timely updates on accounting and financial reporting topics from KPMG. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. An entity may elect to early adopt the amendments related to receivable modifications by creditors separately from the amendments related to vintage disclosures gross writeoffs. Against that backdrop, the statement of cash flows is coming into the spotlight again. Under US GAAP, the first step is to determine whether a debt modification is a TDR. Informing your decision-making. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 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. Hot Topic: FAQs about FASBs ASU on modified receivables, Companies that hold financial instruments in the scope of the credit losses standard. Latest edition: Side-by-side comparison of IFRS Accounting Standards and US GAAP. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Delivering insights to financial reporting professionals. Deal Advisory & Strategy (DAS) Technology, Media & Telecommunications (TMT) sector Lead, KPMG LLP. The accounting implications differ depending on whether the borrower's or lender's accounting is being considered. Partner, Dept. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Overview. 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. Do the changes make a new or changed term loan substantially different from the old term loan? Latest edition: Our in-depth guide provides interpretive guidance for before, during and after Chapter 11 bankruptcy. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. IFRS 9 does not have similar guidance. selected dealer agreement . No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. In bringing this guidance together, we aim to help you effectively and efficiently identify the guidance that applies to different types of investments and understand the related accounting requirements. 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. A debt modification may be accounted for as (1) the extinguishment of the existing debt and the issuance of new debt, or (2) a modification of the existing debt, depending on the extent of the changes. Cash flows are defined as net of any fees paid and/or received2 and are discounted using the effective interest rate of the original debt. 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. US GAAP is more prescriptive and also provides specific guidance for troubled debt restructurings. Browse articles,set up your interests, orView your library. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. This requires our clients to constantly appraise the nature of their present banking relationships, evaluate alternative pools of capital, understand their true cost of capital and approach financing in the context of an effective overall capital management strategy. 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. KPMG does not provide legal advice. Find out what KPMG can do for your business. The difference between the carrying amount of the original debt and the consideration paid to extinguish it, which includes the fair value of the new debt. Determining if a debt modification is substantial, measuring the carrying amount of the debt and any resulting gain or loss can be a complex exercise. KPMGs integrated team of specialists uses game-changing technology to give you confidence across the transaction life cycle. 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. ; Discounts Available for Groups of 3 or More! No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Like IFRS 9, under US GAAP, the accounting for fees and costs incurred in a debt modification depends on whether the modification is substantial. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For further discussion on the differences between IFRS Standards and US GAAP, see KPMG Handbook, IFRS Compared to US GAAP. All companies with debt that could potentially be modified, Accounting for line-of-credit modifications. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. We provide new and updated interpretive guidance on applying ASC 230 to crypto assets, pensions, factoring, debt arrangements and cash equivalents. the financial liability). Partner, Dept. Are you still working? Reg. Receive timely updates on accounting and financial reporting topics from KPMG. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. All rights reserved. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Use our Accounting Research Online for financial reporting resources. 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. Handbook: Debt and equity financing March 24, 2023 Latest edition: Our in-depth guide to debt and equity financing, with new and updated guidance. A debt modification is considered substantial under a quantitative and qualitative assessment as follows. Keywords: Debt, Equity, ASC 470-10, Debt Arrangements, Accounting In June 2016, the FASB issued ASU 2016-13. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. black creek industrial reit iv inc. up to $2,000,000,000 of common stock: class t shares . Use our Accounting Research Online for financial reporting resources. Please see www.pwc.com/structure for further details. US GAAP contains prescriptive guidance on how to perform the 10% test. Sharing our expertise and perspective. Step 5: Recognize revenue when (or as) the entity satisfies a . 6. 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. But identifying the appropriate activity category for the many types of cash flows can be complex and regularly attracts SEC scrutiny. Latest edition: Our in-depth guide to debt and equity financing, with new and updated guidance. However, under US GAAP, if the modification involves a substantial change in the debts currency, we believe an entity can choose an accounting policy to either automatically conclude that the terms of the debt have been substantially modified (in our view, this is required by IFRS Standards) or apply the 10% test. of Professional Practice, KPMG US, Executive Director, Dept. IFRS 9 provides no specific guidance in such a scenario and each modification is assessed separately. Explore the topics at the Financial Reporting View. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. Potentially misunderstood and often an afterthought when financial statements are being prepared, it provides key information about an entitys financial health and its capacity to generate cash. Reduction in impairment models And for practical issues where the guidance remains unclear, we offer our position on how to classify many of these cash flows. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. This new KPMG guide compares the financial reporting implications of the CARES Act under IFRS to US GAAP. Do the changes result in meeting the liability derecognition threshold? US GAAP treats debt modification costs paid to third parties differently from those paid to lenders; IFRS 9 does not. Sharing our expertise and perspective. 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. Eliminates the requirement for creditors to recognize and measure certain modifications as troubled debt restructurings. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. All rights reserved. Naturally, there are accounting implications when the borrower and lender agree to modify or restructure an existing loan or exchange one loan for another. Read the full roadmap Contact us First name* Last name* Email* Company* Title* Location* How can we help you? All rights reserved. Please seewww.pwc.com/structurefor further details. (a) The Company meets the requirements for use of Form S-3 under the Act, including General Instruction I.A and I.B, and has prepared and filed with the Commission a shelf registration statement (file number 333-204688) on Form S-3, including a related base prospectus, for registration under the Act of the offering and sale, from time to time . All rights reserved. All rights reserved. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. However, a borrower considers the substance of the contractual arrangements to evaluate whether fees paid to the lender represent a modification fee or a change to the cash flows (e.g. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. of Professional Practice, KPMG US, Senior Manager, Dept. In addition, current triggers for market change (e.g. As the FASB and SEC focus on providing evermore useful information to financial statement users, they have specifically mentioned the statement of cash flows as a way to provide that information. Nearly 30 years later, some of those requirements and concepts are still present including the core principles for classification and accounting for debt securities. 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. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. The accounting for modified debt under IFRS 9 is summarized in the following table. This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. 33 rd Annual Accounting & Financial Reporting Symposium. It is for your own use only - do not redistribute. The University's total enrolments exceeded . Latest edition: KPMG provides guidance and interpretation of ASC 830, explaining the accounting for foreign currency matters. Creating valuable breathing space in a COVID-19 world. Our in-depth guide has been updated to reflect those changes. Step 2: Identify the performance obligations in the contract. PwC. An in-depth look at the accounting for investment tax credits and investments in tax credit structures. IFRS 9 requires the amortised cost of the liability to be recalculated by discounting the modified contractual cash flows (excluding costs and fees) using the original effective interest rate. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Explore the topics at the Financial Reporting View. Step 3: Determine the transaction price. Receive timely updates on accounting and financial reporting topics from KPMG. Receive timely updates on accounting and financial reporting topics from KPMG. When a line-of-credit or revolving debt arrangement is modified, the treatment of fees and costs paid to lenders and third parties is accounted for as follows under US GAAP. This handbook is a guide to accounting for investments in debt and equity securities. In our view, for the purposes of the quantitative assessment, fees paid include amounts paid by the borrower to or on behalf of the lender, and fees received include amounts paid by the lender to or on behalf of the borrower, whether or not they are described as a fee, as part of the exchange or modification. 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