IFRS 9 does not have similar guidance. Applicability ASC 230 All companies The Guide is designed for use by management1to help address the requirements, needs and objectives for evaluating and assessing an entity's internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the COSO 2013 Framework published by the Committee of Sponsoring Organizations of the Treadway You can set the default content filter to expand search across territories. Latest edition: Our in-depth guide to accounting for acquisitions of businesses, updated for recent application issues. Delivering insights to financial reporting professionals. Using Q&As and examples, KPMG provides interpretive guidance on debt and equity financings. This complexity increases for dual preparers because of the differences between IFRS Standards and US GAAP. We have created a thought leadership platform to help you address the ever-increasing and complex marketplace challenges and drive inorganic growth in a globally connected economy. Latest edition: KPMG explains the accounting for income taxes in detail, providing examples and analysis. Partner, Dept. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. Latest edition: We explain the equity method of accounting in detail, providing examples and analysis. All rights reserved. Chapter 3: Debt modification and extinguishment. Instead, the effective interest rate of the debt is recalculated so that the present value of the modified contractual cash flows equals its amortized cost. For affected institutions, the amendments compel advanced planning . KPMG Advisory Podcast Index page. exhibit 10.1 . 2019 - 2023 PwC. a partial prepayment), or both. selected dealer agreement . Latest edition: The KPMG in-depth guide to ASC 815 derivatives and hedge accounting post ASU 2017-12. Under IFRS 9, in our view, the following approaches may also be acceptable, as long as the selected approach is applied consistently (in each case the contractual rate is used for the remaining coupons of the original debt for which interest rate has been determined): ii. Do the changes make a new or changed term loan substantially different from the old term loan? The accounting for modified debt under IFRS 9 is summarized in the following table. Differences may arise in practice. Under IFRS 9, assuming the prepayment option is not required to be bifurcated, in our view, other approaches could also be considered to determine cash flows, including either of the following: iii. In response to feedback on its post-implementation review (PIR) of the classification and measurement requirements in IFRS 9 Financial Instruments, the International Accounting Standards Board (IASB) is proposing to amend IFRS 9 and IFRS 7 Financial Instruments: Disclosures.The proposals include guidance on the classification of financial assets, including those with ESG-linked features. Use our Accounting Research Online for financial reporting resources. Scope. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. Under US GAAP, if the original debt or the new debt has a floating interest rate, then the variable rate in effect at the date of the modification is used to calculate the cash flows of the instrument. Modification or exchange of financial liabilities Do you have modifications or exchanges of fixed rate financial liabilities that do not result in derecognition? 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. However, under US GAAP, the gating question is whether the modification is a troubled debt restructuring (TDR see difference #1 below). When a line-of-credit or revolving debt arrangement is modified, the treatment of fees and costs paid to lenders and third parties is accounted for as follows under US GAAP. The accounting change has been particularly impactful to institutions with significant lending activities or investments in debt securities. This new KPMG guide compares the financial reporting implications of the CARES Act under IFRS to US GAAP. Latest edition: Our comprehensive guide to the statement of cash flows, with Q&As and examples to explain key concepts. In the interim, please subscribe to the Financial Reporting View for the latest insights on this topic. Like IFRS 9, under US GAAP, the accounting for fees and costs incurred in a debt modification depends on whether the modification is substantial. Consider removing one of your current favorites in order to to add a new one. We offer hands-on assistance in analyzing options, structuring, arranging and achieving financial close across the full spectrum of debt products. Naturally, there are accounting implications when the borrower and lender agree to modify or restructure an existing loan or exchange one loan for another. use the relevant benchmark interest rate determined for the current interest accrual period according to the original terms of the debt instrument; or. Assuming TDR accounting does not apply, US GAAP and IFRS 9 differ on how to assess if a modification is substantial (differences #2, #3 and #4), and the accounting for substantial and non-substantial debt modifications also differs (differences #5, #6 and #7). US GAAP contains prescriptive guidance on how to perform the 10% test. Receive timely updates on accounting and financial reporting topics from KPMG. Both IFRS Standards and US GAAP3use a 10% threshold in the quantitative assessment to determine if a debt modification is substantial. 3. This requires our clients to constantly appraise the nature of their present banking relationships, evaluate alternative pools of capital, understand their true cost of capital and approach financing in the context of an effective overall capital management strategy. For more detail about our structure please visithttps://kpmg.com/governance. 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. Debt and equity financing under US GAAP 2021 KPMG Handbook. Use our Accounting Research Online for financial reporting resources. Applicability Adjust the carrying amount of the original debt and amortize over its remaining term (i.e. KPMG does not provide legal advice. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. All rights reserved. Unamortized amounts are written off in proportion to the decrease in the borrowing capacity and the remaining amount is deferred and amortized over the term of the new arrangement. the modification is substantial), the original debt instrument is considered extinguished and is derecognized for accounting purposes, and a new debt instrument is recognized in its place. In-depth guidance on ASC 848s optional relief for affected contracts and transactions. Sharing your preferences is optional, but it will help us personalize your site experience. 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. 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. And for practical issues where the guidance remains unclear, we offer our position on how to classify many of these cash flows. Informing your decision-making. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. Our in-depth guide has been updated to reflect those changes. US GAAP TDR accounting does not exist under IFRS 9. #Audit #kpmgfrv IFRS 3R: Impact on earnings - the crucial Q&A for decision-makers Guide aimed at finance directors, financial controllers Step 2: Identify the performance obligations in the contract. Explore the topics at the Financial Reporting View. The underlying principles in Topic 230 (Statement of Cash Flows) seem straightforward. All rights reserved. Browse articles,set up your interests, orView your library. 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. The accounting implications differ depending on whether the borrower's or lender's accounting is being considered. Use our Accounting Research Online for financial reporting resources. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. of Professional Practice, KPMG US, Executive Director, Dept. Register early and save! Both IFRS Standards and US GAAP address debt modifications. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. 33 rd Annual Accounting & Financial Reporting Symposium. A listing of podcasts on KPMG Advisory. Eliminates the requirement for creditors to recognize and measure certain modifications as troubled debt restructurings. Ind AS Implementation Guide I 26 Key principles Financial instruments that give rise to a contractual obligation to deliver cash or another financial asset are classified as financial liabilities. Latest edition: Our in-depth guide provides interpretive guidance for before, during and after Chapter 11 bankruptcy. Our new guide explains the measurement and reporting of GHG emissions through the lens of the Greenhouse Gas Protocol. 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