The IMA Financial Reporting Committee (FRC or Committee) issued a comment letter in response to the FASB’s Proposed Accounting Standards Update (ASU) No. 2021-006, Financial Instruments—Credit Losses (Topic 362): Troubled Debt Restructurings and Vintage Disclosures (Proposal).
The FASB issued the Proposal with the objective of eliminating guidance that requires the separate recognition and measurement of troubled debt restructurings (TDR). In its comment letter, the FRC states that it agrees with this overall objective and the proposed application of existing guidance regarding loan refinancing and restructuring agreements. This guidance establishes whether an entity must characterize an agreement as a new loan or the modification of an existing loan. The Committee also agrees with proposed amendments that provide for incremental disclosures on restructurings and by vintage (origination).
To promote clarity and reduce complexity, the FRC raises several additional points for the FASB to consider, including:
(1) continued application of current guidance regarding loan extensions
(2) the consideration of concessions as part of the effective interest rate and
(3) disclosure of pre-modification amortized cost basis as of the end of a reporting period (to avoid the complexities in reconstructing pre-modification data as of earlier dates).