The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) intended to improve the decision usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs.
FASB Chair Richard R. Jones stated, “The new ASU responds to feedback we received from investors and other stakeholders during our extensive post-implementation review (PIR) of the credit losses standard. The amendments create a single model for loan modification accounting by creditors while providing improved loan modification and write-off disclosures.”
Troubled Debt Restructurings by Creditors That Have Adopted CECL
During the FASB’s PIR of the credit losses standard, including a May 2021 round table, 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.
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.
Vintage Disclosures—Gross Writeoffs
The disclosure of gross write-off 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 write-offs by year of origination for financing receivables and net investment in leases.
The ASU, including information on effective dates, is available at www.fasb.org.
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