kpmg debt modification guide

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. 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. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. Do the changes meet the definition of a troubled debt structuring? This specific guidance does not exist in IFRS 9, where the assessment requires more judgment. Receive timely updates on accounting and financial reporting topics from KPMG. Latest edition: Our in-depth guide to ASC 842 with Q&As, interpretive guidance and examples. Step 1: Identify the contract with the customer. Do our capital management plans align with our long-term strategic objectives? Our Financial reporting developments (FRD) publication, Issuer's accounting for debt and equity financings (before the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity), has been updated to enhance and clarify our interpretative guidance. The KPMG accounting research website to access additional resources for your financial reporting needs. Receive timely updates on accounting and financial reporting topics from KPMG. Informing your decision-making. Debt Restructuring Under IFRS 9: Changes You May Have Missed. Latest edition: Our Q&As on the FASBs revenue and other income recognition standards in the real estate industry. The underlying principles in Topic 230 (Statement of Cash Flows) seem straightforward. KPMG Advisory Podcast Index page. Latest edition: KPMG provides guidance and interpretation of ASC 830, explaining the accounting for foreign currency matters. Read the full roadmap Contact us First name* Last name* Email* Company* Title* Location* How can we help you? No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 1.1001-3. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. Updated: Guidance to help navigate financial statement requirements for acquired businesses. Latest edition: Our in-depth guide to the revenue standard, ASC 606. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. In addition, current triggers for market change (e.g. KPMG does not provide legal advice. For further discussion on the differences between IFRS Standards and US GAAP, see KPMG Handbook, IFRS Compared to US GAAP. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. 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. Explore the topics at the Financial Reporting View. Latest edition: Our comprehensive guide to managements going concern assessment. Reg. Applicability All entities Relevant dates Effective immediately Report contents Partner, Dept. 7. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. [AASB 9.B3.3.6A *] In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. Get the latest KPMG thought leadership directly to your individual personalized dashboard. #Audit #kpmgfrv The accounting implications differ depending on whether the borrowers or lenders accounting is being considered. Unlike IFRS 9 (see above table), under US GAAP, if the debt modification is non-substantial, the carrying amount of the original debt is not adjusted and therefore no gain or loss is recognized. KPMG refers to the global organization or to one or more of the member firms of KPMG International Limited (KPMG International), each of which is a separate legal entity. 1. 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. Discover what makes RSM the first choice advisor to middle market leaders, globally. Against that backdrop, the statement of cash flows is coming into the spotlight again. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. 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. KPMG in-depth guide to accounting for software and website costs under ASC 350-40, ASC 350-50 and ASC 985-20. Partner, Dept. 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. Reduction in impairment models No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The first comprehensive accounting and reporting guidance on investments in debt and equity securities was issued in 1993. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. 2. This one focuses on accounting for debt modifications. Is the net present value of the debt cash flows under the new terms different by at least 10% from the present value of the remaining cash flows under the original terms? The following flowchart sets out how to assess whether or not a debt modification is substantial: The role of fees in the 10% test As mentioned above, if the '10% test' is exceeded in the quantitative test, this results in a substantial modification. Step 4: Allocate the transaction price to the performance obligations in the contract. Requirements to provide separate sets of financial statements for guarantors and non-guarantors of debt as a result of Rule 3-10 of Regulation S-X. COVID-19, IBOR reform or the promotion of ESG initiatives) are likely to increase the frequency of modifications in the near term. Detailed guidance provides clarity and consistency You may need to address historical lease modifications now - depending on your transition approach Download our lease modifications publication Brian O'Donovan Partner, IFRG KPMG International Email Accounting for changes to lease contracts Lease modifications are very common. Therefore, diverse presentation practices remain. . Eliminates the requirement for creditors to recognize and measure certain modifications as troubled debt restructurings. Both IFRS Standards and US GAAP address debt modifications. Debt Advisory professionals across KPMG's member firms have extensive experience, insight and market presence to provide holistic and conflict-free advice to match your strategic objectives. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. IFRS 3R: Impact on earnings - the crucial Q&A for decision-makers Guide aimed at finance directors, financial controllers 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 . Increased auditing standards, such as SAS Nos. Todays deals require you to look at the bigger picture. This is the third of a series on accounting for debt and equity related webcasts. We intend to continue the dialogue updating our guidance to provide our insights on issues that arise. Overview. These remaining investments typically give the investor limited (if any) influence over the investee. The accounting implications differ depending on whether the borrower's or lender's accounting is being considered. It is for your own use only - do not redistribute. Each member firm is a separate legal entity. For affected institutions, the amendments compel advanced planning . of Professional Practice, KPMG US. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. 3. In-depth guidance on, and interpretation of, ASC 326. This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. Latest edition: Our comprehensive guide to EPS, updated for ASUs 2020-06 and 2021-04. Naturally, there are accounting implications when the borrower and lender agree to modify or restructure an existing loan or exchange one loan for another. revise the effective interest rate of the debt). Receive timely updates on accounting and financial reporting topics from KPMG. Partner, Dept. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. * Use coupon code EARLY23SYMP by July 31, 2023 to save $100 off your registration. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. Getting the accounting right requires collaboration across the accounting, treasury and legal departments to develop robust internal controls around debt modifications, and sound judgments. use the outcome of the most likely scenario. Our in-depth guide to accounting for R&D costs and R&D funding arrangements. 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. share. However, unlike IFRS 9, US GAAP has different guidance for fees paid to the lender and for third-party costs (e.g. Under US GAAP, when a debt instrument is modified multiple times within a one-year period without the terms being considered to be substantially different, the debt terms that existed before the earliest modification within the one-year period are compared to the most recently modified terms to determine whether the current modification of terms is substantially different. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. A reporting entity should also derecognize a debt instrument (and recognize a new one) when a debt modification or exchange is deemed an extinguishment. Software and SaaS industry overview. Unlike IFRS 9, US GAAP does not require or permit a qualitative assessment if the 10% quantitative test is not met. 4. 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. Non-substantial debt modifications may result in a gain or loss under IFRS 9; not under US GAAP. 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. We explain cash flow classification issues and noncash disclosure requirements in detail. Corporate strategy insights for your industry, Explore Corporate strategy insights for your industry, Financial Services Regulatory Insights Center, Explore Financial Services Regulatory Insights Center, Explore Risk, Regulatory and Compliance Insights, Explore Corporate Strategy and Mergers & Acquisitions, Customer service transformation & technology, Cloud strategy and transformation services. Read now. Under IFRS 91, accounting for a debt modification depends on whether the terms of the original debt agreement have been substantially modified. All rights reserved. All rights reserved. All rights reserved. The University's total enrolments exceeded . The composition of cash and cash equivalents also often raises questions. 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. 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. KPMG does not provide legal advice. Our publication, A guide to accounting for debt modifications and restructurings, addresses the borrower's accounting for the modification, restructuring or exchange of a loan. US GAAP has specific rules for the treatment of fees and costs paid for the modification of undrawn line-of-credit or revolving debt arrangements; IFRS 9 does not. Latest edition: KPMG in-depth guide to accounting for transfers and servicing of financial assets under ASC 860. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. For inquiries and feedback please contact our AccountingLink mailbox. Sharing our expertise and perspective. One form of modification that has become commonplace during the pandemic is modifications to debt agreements. kbauer@deloitte.com +1 203 708 4000 A National Office Audit partner with more than 15 years of experience, Kristin leads the revenue recognition subject matter team within the Accounting Standards and Communications group. These may include changes in principal amounts, maturities, interest rates, prepayment options and other contingent payment terms. Register early and save! Latest edition: Our updated guide to CECL, with Q&As, interpretive guidance and examples. Navigating the accounting for debt modifications can be challenging. KPMG does not provide legal advice. A debt modification is considered substantial under a quantitative and qualitative assessment as follows. This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. Creating valuable breathing space in a COVID-19 world. Borrower requests may include assumptions, modifications, partial releases, property substitutions, partial ownership transfers, lease approvals, easements, reserve disbursements, insurance losses . , interpretive guidance and interpretation of ASC 830, explaining the accounting for foreign currency matters financial. Our AccountingLink mailbox not met get the latest financial reporting standards, resources and actions needed for.... 3-10 of Regulation S-X content is for your kpmg debt modification guide use only - not... Global organization please visithttps: //home.kpmg/governance and other contingent payment terms costs ( e.g in! Interest rate of the services described herein may not be permissible for KPMG Audit clients and their or. Flows ) seem straightforward price to the performance obligations in the contract EARLY23SYMP by July,! 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