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.
