Alternatively, a reporting entity may decide to extinguish its debt prior to maturity. If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. Get the latest KPMG thought leadership directly to your individual personalized dashboard. [AASB 9.B3.3.6A *] Investment accounting is how we refer to the accounting for debt and equity securities that dont fall under other accounting models, such as the equity method or consolidation. Webcast: Statement of cash flows: Practical issues, Cash, cash equivalents and restricted cash, Securitization and other transfers of financial assets. Latest edition: Our in-depth guide to debt and equity financing, with new and updated guidance. All rights reserved. of Professional Practice, KPMG US, Senior Manager, Dept. Sharing our expertise and perspective. Latest edition: KPMG in-depth guide to impairment testing, covering the models in ASC 350-20, ASC 350-30 and ASC 360. KPMG does not provide legal advice. US GAAP specifies how to perform the 10% test; IFRS 9 is less prescriptive. Do our capital management plans align with our long-term strategic objectives? Latest edition: Our in-depth guide to the accounting and presentation requirements of ASC 250. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. Under existing guidance, restructurings of financing receivables that are determined to be TDRs are not subject to the guidance in ASC 310-20-35-9 through 35-11 for determining whether the restructuring is "more than minor" and is, therefore, a new financing receivable. This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. The KPMG accounting research website to access additional resources for your financial reporting needs. 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). This handbook is a guide to accounting for investments in debt and equity securities. Under IFRS Standards, the accounting is not affected by whether the modification is a TDR. The amendments in the ASU respond to feedback receivedduring the post-implementation review of the creditimpairment standard (ASC 326). Under US GAAP, the first step is to determine whether a debt modification is a TDR. 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. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. Use our Accounting Research Online for financial reporting resources. The modification affects the terms of an embedded conversion option, causing a change in the fair value of the embedded conversion option of at least 10% of the carrying amount of the original debt immediately before the modification. Use our Accounting Research Online for financial reporting resources. Non-substantial debt modifications may result in a gain or loss under IFRS 9; not under US GAAP. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. a partial prepayment), or both. (a) The Company meets the requirements for use of Form S-3 under the Act, including General Instruction I.A and I.B, and has prepared and filed with the Commission a shelf registration statement (file number 333-204688) on Form S-3, including a related base prospectus, for registration under the Act of the offering and sale, from time to time . Use our Accounting Research Online for financial reporting resources. Hedge accounting - cash flow hedges Now assume that the same company has a policy of ensuring that its interest rate risk exposure is economically a fixed rate. This chapter discusses the accounting for debt modifications and exchanges, including: This chapter also discusses the accounting for debt defeasances and extinguishments. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. Financing transactions. 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. We explain cash flow classification issues and noncash disclosure requirements in detail. Chapter 3: Debt modification and extinguishment. But identifying the appropriate activity category for the many types of cash flows can be complex and regularly attracts SEC scrutiny. KPMG does not provide legal advice. US GAAP treats debt modification costs paid to third parties differently from those paid to lenders; IFRS 9 does not. Receive timely updates on accounting and financial reporting topics from KPMG. Publication date: 31 Dec 2022 us PP&E and other assets guide 1.1 This chapter focuses on property, plant, and equipment (PP&E) costs and provides guidance on cost capitalization, including what types of costs are capitalizable and when capitalization should begin. #Audit #kpmgfrv Todays deals require you to look at the bigger picture. Our publication,A guide to accounting for debt modifications and restructurings, addresses the borrowers accounting for the modification, restructuring or exchange of a loan. Informing your decision-making. In June 2016, the FASB issued ASU 2016-13. 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. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Unsurprisingly, contract modifications have become more frequent in the COVID-19 environment. Under US GAAP, a debt modification is always considered substantial in the following circumstances. 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. KPMG International provides no client services. Once this webcast has been presented, it will be available as a CPE-Eligible Self-Study. Here we offer our latest thinking and top-of-mind resources. 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. Delivering insights to financial reporting professionals. A reporting entity may modify the terms of its outstanding debt by restructuring its terms or by exchanging one debt instrument for another. Our new guide explains the measurement and reporting of GHG emissions through the lens of the Greenhouse Gas Protocol. The first comprehensive accounting and reporting guidance on investments in debt and equity securities was issued in 1993. An entity may elect to early adopt the amendments related to receivable modifications by creditors separately from the amendments related to vintage disclosures gross writeoffs. Recognition of expected credit losses, writeoffs and recoveries, Methods to estimate expected credit losses and collective assessment, Historical loss experience, forecasts and reversion, Credit enhancements and practical expedients, Purchased financial assets with credit deterioration, Business combinations and asset acquisitions, Other investments in equity method investees, Specific considerations for insurance entities, commercial entities and trade receivables, Targeted changes foravailable-for-sale debt securities, Presentation, disclosure, effective date and transition. Against that backdrop, the statement of cash flows is coming into the spotlight again. use the relevant benchmark interest rates for the original remaining term based on the relevant forward interest rate curve and the relevant benchmark interest rates for the new term of the instrument based on the relevant forward interest rate curve. The new debt instrument is recorded at fair value and any difference from the carrying amount of the extinguished liability, including any non-cash consideration transferred, is recorded in profit or loss. All rights reserved. A gain or loss should be recognised in profit or loss for modifications of such financial liabilities that do not result in derecognition. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Do the changes result in meeting the liability derecognition threshold? Delivering insights to financial reporting professionals. Follow along as we demonstrate how to use the site. classify debt arrangements; distinguish debt from equity considerations. 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. of Professional Practice, KPMG US. Objective third-party advisors, combining quick strategic advice on the situation 2023Copyright owned by one or more of the KPMG International entities. This Subtopic provides accounting and reporting guidance for debt (and certain preferred stock) with specific conversion features and other options as follows: Debt instruments with detachable warrants Convertible securitiesgeneral Beneficial conversion features Interest forfeiture Induced conversions NOTE: This course is currently being modified and updated for accounting standard updates. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Conversely, when a modification is non-substantial, the original debt instrument is not extinguished. Appendix F provides a summary of the . the financial liability). 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. because the modification is deemed non-substantial), any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability. Improving business performance, turning risk and compliance into opportunities, developing strategies and enhancing value are at the core of what we do for leading organizations. A reporting entity should also derecognize a debt instrument (and recognize a new one) when a debt modification or exchange is deemed an extinguishment. Depending on its facts and circumstances, the borrower may be required to: (a) adjust the carrying amount of the loan, (b) change the amount of interest expense recognized in the income statement on a going-forward basis or recognize a gain or loss in the income statement and (or) (c) expense some of the costs incurred to execute the changes and (or) defer and amortize other costs. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. Latest edition: We explain the equity method of accounting in detail, providing examples and analysis. Deloitte's Roadmap Convertible Debt (Before Adoption of ASU 2020-06) provides a comprehensive discussion of the classification, recognition, measurement, presentation, and disclosure guidance that applies to convertible debt instruments. But there have been several changes (especially for equity securities) as well as challenges in applying the guidance to new facts and circumstances and new types of investments. 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. 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. Browse articles,set up your interests, orView your library. For affected institutions, the amendments compel advanced planning . Latest edition: Our comprehensive guide to the statement of cash flows, with Q&As and examples to explain key concepts. In addition, current triggers for market change (e.g. Our in-depth guide has been updated to reflect those changes. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Alternatively, a reporting entity may decide to extinguish its debt prior to maturity. However, under IFRS standards, when an equity conversion option included in the original debt is modified as part of a restructuring of the debt, judgment is applied in assessing whether the modification of the conversion option is substantial. David Heathcote, Global Head of Debt Advisory and Global Lead Partner. of Professional Practice, KPMG US, Executive Director, Dept. RSM Guide to accounting for debt modifications and restructurings alishan February 21, 2022 RSM US GAAP Publications, US GAAP For a variety of reasons, borrowers and lenders may renegotiate the terms of existing loans or exchange an existing loan for a new loan with the same lender. If yes, TDR accounting is applied. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. CPE eligible replays now available. This was slightly down on the 2015 rate of 81%. Rather than waiting for scrutiny this is a good time for entities to revisit the how-tos in preparing the statement of cash flows. PwC. Updated: Guidance to help navigate financial statement requirements for acquired businesses. Measurement of the debt (i.e. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. Handbook: Revenue recognition March 24, 2023 US GAAP has specific rules for modifications that affect an embedded conversion option; IFRS 9 is less prescriptive. (only performed if the 10% quantitative test is not met). The statement of cash flows is a central component of an entitys financial statements. KPMG Technical Accounting Advisory Services provides on-call advice and project-based support in many areas, including: Accounting advice, interpretation, and transactional support for mergers, acquisitions, divestitures, investments, structured finance, debt and equity offerings, leasing, and derivatives. 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. i. Receive timely updates on accounting and financial reporting topics from KPMG. Sec. Explore the topics at the Financial Reporting View. The FASB has issued guidance deferring the effective dates for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and other private companies, including not-for-profits and employee benefit plans. Partner, Dept. Handbook: Debt and equity financing March 24, 2023 Latest edition: Our in-depth guide to debt and equity financing, with new and updated guidance. Informing your decision-making. Receive timely updates on accounting and financial reporting topics from KPMG. Getting the accounting right requires collaboration across the accounting, treasury and legal departments to develop robust internal controls around debt modifications, and sound judgments. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Do the changes result in meeting the liability derecognition threshold GHG emissions through the lens of the particular.... We demonstrate how to perform the 10 % quantitative test is not extinguished and! To access additional resources for your financial reporting topics from KPMG to address circumstances. 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