New Guidance and Clarification on Troubled Debt Restructurings


By Bryan Mogensen

Few members have come through the economic downturn unscathed. Some are more battered and bruised than others, but one of the consistent consequences of the recession has been a dramatic increase in the volume of loan modifications for members.

The Financial Accounting Standards Board (FASB) noted divergence in practice when determining which loan modifications constitute a troubled debt restructuring (TDR).

FASB issued an exposure draft in October 2010, and in April 2011, it issued Accounting Standards Update (ASU) No. 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.”

Possible Impact on Financial Statements

When implemented, ASU 2011-02 will change how some credit unions evaluate whether a loan modification constitutes a TDR. Since U.S. GAAP requires a specific impairment-measurement method and disclosures for receivables that are part of a TDR, the new standard could have a significant impact on the financial statements of some credit unions.

FASB has stated that ASU 2011-02 was issued to help provide clarity when determining whether a creditor has granted a “concession” and whether a debtor (member) is experiencing “financial difficulty,” for purposes of determining whether a loan modification constitutes a TDR.

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