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. Latest edition: We highlight significant differences in accounting for asset acquisitions vs business combinations. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. Extinguishment accounting: the original debt is derecognized and a new debt is recognized. 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. Our in-depth guide has been updated to reflect those changes. Using Q&As and examples, KPMG provides interpretive guidance on debt and equity financings. 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. KPMG does not provide legal advice. Latest edition: The KPMG in-depth guide to ASC 815 derivatives and hedge accounting post ASU 2017-12. 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. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. This latest edition includes guidance on ASU 2022-02 (troubled debt restructurings and vintage disclosures), with new interpretations and examples based on experience with companies implementing ASC 326. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Todays deals require you to look at the bigger picture. Yet, there has not been significant standard setting in this area since 2016 when the EITF clarified a series of classification issues and changed the presentation of restricted cash and cash equivalents. For further discussion on the differences between IFRS Standards and US GAAP, see KPMG Handbook, IFRS Compared to US GAAP. This complexity is compounded by the fact that every transaction recorded through the financial statements needs to be assessed for its impact on the statement of cash flows. Do the changes make a new or changed term loan substantially different from the old term loan? The composition of cash and cash equivalents also often raises questions. Member firms of the KPMG network of independent firms are affiliated with KPMG International. Use our Accounting Research Online for financial reporting resources. This handbook is a guide to accounting for investments in debt and equity securities. We explain cash flow classification issues and noncash disclosure requirements in detail. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Receive timely updates on accounting and financial reporting topics from KPMG. A listing of podcasts on KPMG Advisory. All rights reserved. KPMG does not provide legal advice. Appendix F provides a summary of the . 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. of Professional Practice, KPMG US. Entities that have adopted the credit impairment standard (ASC 326). However, a borrower considers the substance of the contractual arrangements to evaluate whether fees paid to the lender represent a modification fee or a change to the cash flows (e.g. Naturally, there are accounting implications when the borrower and lender agree to modify or restructure an existing loan or exchange one loan for another. KPMG International entities provide no services to clients. Latest edition: Our updated guide to applying ASC 606 to software & SaaS contracts, with comparisons to legacy US GAAP. KPMG does not provide legal advice. KPMG does not provide legal advice. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Explore the topics at the Financial Reporting View. Modification or exchange of financial liabilities Do you have modifications or exchanges of fixed rate financial liabilities that do not result in derecognition? But identifying the appropriate activity category for the many types of cash flows can be complex and regularly attracts SEC scrutiny. 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. This new KPMG guide compares the financial reporting implications of the CARES Act under IFRS to US GAAP. Webcast: Statement of cash flows: Practical issues, Cash, cash equivalents and restricted cash, Securitization and other transfers of financial assets. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. 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. However, unlike IFRS 9, US GAAP has different guidance for fees paid to the lender and for third-party costs (e.g. Generally, include in the gain or loss on extinguishment. 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. Explore the topics at the Financial Reporting View. Latest edition: Applying fair value measurement and disclosure guidance under US GAAP and IFRS Accounting Standards. Refer to Appendix D of the publication for a summary of the updates. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. It may require significant judgment, in particular around the underlying terms, assumptions, calculations and conclusions. The accounting implications differ depending on whether the borrowers or lenders accounting is being considered. of Professional Practice, KPMG US. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Welcome to Viewpoint, the new platform that replaces Inform. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. The analysis that generates a smaller change in cash flows forms the basis for determining whether the 10% test is met. Receive timely updates on accounting and financial reporting topics from KPMG. In terms of student enrolments, 2016 saw a reversal of the declining trend of the past few years. 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. Informing your decision-making. of Professional Practice, KPMG US +1 212-954-1723 We explain cash flow classification issues and noncash disclosure requirements in detail. We use cookies to personalize content and to provide you with an improved user experience. And for practical issues where the guidance remains unclear, we offer our position on how to classify many of these cash flows. the financial liability). KPMGs guide provides interpretive guidance, including Q&As and illustrative examples, on the application of ASC 853. Reg. Receive timely updates on accounting and financial reporting topics from KPMG. * Use coupon code EARLY23SYMP by July 31, 2023 to save $100 off your registration. Both IFRS Standards and US GAAP address debt modifications. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 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. Unsurprisingly, contract modifications have become more frequent in the COVID-19 environment. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Each member firm is a separate legal entity. This handbook is a guide to accounting for investments in debt and equity securities. This was slightly down on the 2015 rate of 81%. Latest edition: Our in-depth consolidation guide, covering variable interest entities, voting interest entities and NCI. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. 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. 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. All rights reserved. If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. Partner, Dept. All rights reserved. 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. IFRS 9 does not have similar guidance. Both assessments may require significant judgment. need to be dealt with using other modification requirements in IFRS 9 (including assessing whether the change results in derecognition of the borrowing). Sharing our expertise and perspective. #Audit #kpmgfrv Updated: Guidance to help navigate financial statement requirements for acquired businesses. 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. revise the effective interest rate of the debt). The adjustment to the debt carrying amount. In addition, current triggers for market change (e.g. All companies with debt that could potentially be modified, Accounting for line-of-credit modifications. Cash flows are classified as either operating, financing or investing activities depending on their nature. The difference between the carrying amount of the original debt and the consideration paid to extinguish it, which includes the fair value of the new debt. Debt and equity financing under US GAAP 2021 KPMG Handbook. Connect with us via webcast, podcast or in person/virtual at industry conferences. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. * For more information, call 201-505-6062 or email us-kpmglearning@kpmg.com. 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. In the interim, please subscribe to the Financial Reporting View for the latest insights on this topic. Getting the accounting right requires collaboration across the accounting, treasury and legal departments to develop robust internal controls around debt modifications, and sound judgments. US GAAP has specific rules for modifications that affect an embedded conversion option; IFRS 9 is less prescriptive. Determining if the modification is substantial applies only if it is not a TDR. KPMGs integrated team of specialists uses game-changing technology to give you confidence across the transaction life cycle. KPMG in-depth guide to accounting for software and website costs under ASC 350-40, ASC 350-50 and ASC 985-20. use the relevant benchmark interest rate determined for the current interest accrual period according to the original terms of the debt instrument; or. 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. Sharing our expertise and perspective. sir frederick barclay wife; steele high school teachers; kpmg debt and equity guide on March 10, 2023 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. Applicability Similarly, the impact to profit or loss differs based on whether the terms of the original debt have been substantially modified. But amid all the change, the standard is also flexible, allowing companies to formulate their own approaches and to leverage many existing practices. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 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 . Latest edition: Our in-depth guide to ASC 842 with Q&As, interpretive guidance and examples. Delivering insights to financial reporting professionals. Overview. Latest edition: Our in-depth guide to the accounting and presentation requirements of ASC 250. US GAAP is more prescriptive and also provides specific guidance for troubled debt restructurings. This content outlines initial considerations meriting further consultation with life sciences organizations, healthcare organizations, clinicians, and legal advisors to explore feasibility and risks. 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. KPMG does not provide legal advice. Sharing our expertise and perspective. This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. US GAAP TDR accounting does not exist under IFRS 9. Partner, Accounting Advisory Services, KPMG US. Do our capital management plans align with our long-term strategic objectives? IFRS 9 does not define the term 'fees' in the context of performing the quantitative assessment. Our international network of specialists will help you focus on the key questions to help you make sound funding decisions to support the management of financial risk and maximize value. 3. Explore the topics at the Financial Reporting View. Our multi-disciplinary approach and deep, practical industry knowledge, skills and capabilities help our clients meet challenges and respond to opportunities. Provides an overview of the standard's concepts, descriptions of the procedures and an illustrative example of its application. We offer hands-on assistance in analyzing options, structuring, arranging and achieving financial close across the full spectrum of debt products. Both IFRS Standards and US GAAP address debt modifications. 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. Carry out therapeutic regimens such as behavior modification and personal development programs, under the supervision of special education instructors, psychologists, or speech-language pathologists. KPMG experts and professionals continually research, update and produce many publications. All rights reserved. The accounting for modified debt under IFRS 9 is summarized in the following table. Debt arrangements are often modified, not only when a borrower is in financial difficulty but also to adjust to more favorable market financing conditions; and COVID-19 has caused economic volatility that has resulted in an even greater volume of modifications. Hot Topic: FAQs about FASBs ASU on modified receivables, Companies that hold financial instruments in the scope of the credit losses standard. All rights reserved. Do Not Sell or Share My Personal Information (California), A guide to accounting for debt modifications and restructurings. 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. 1.1001-3. of Professional Practice, KPMG US, Executive Director, Dept. 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. Step 3: Determine the transaction price. US GAAP specifies how to perform the 10% test; IFRS 9 is less prescriptive. A reporting entity should also derecognize a debt instrument (and recognize a new one) when a debt modification or exchange is deemed an extinguishment. IFRS 9 qualitative assessment does not exist under US GAAP. Latest edition: KPMG explains the accounting for income taxes in detail, providing examples and analysis. Our new guide explains the measurement and reporting of GHG emissions through the lens of the Greenhouse Gas Protocol. Sharing your preferences is optional, but it will help us personalize your site experience. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. Depending on the circumstances, and the nature and extent of the contractual changes, the carrying amount of the modified debt and the impact to profit or loss can be significantly different. Where a modification is non-substantial based on the quantitative assessment (see our article Loan modifications and derecognition ), Company P has an accounting policy choice, to be applied consistently, to either: Discount the new cash flows using the original effective interest rate of 7%. Use our Accounting Research Online for financial reporting resources. Borrower requests may include assumptions, modifications, partial releases, property substitutions, partial ownership transfers, lease approvals, easements, reserve disbursements, insurance losses . Provides specific guidance for fees paid to the pwc network and/or one or more its! Contract modifications have become more frequent in the following table impairment standard ( ASC 326 ),... 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Us, Executive Director, Dept 10 % test is met is met ASC 842 with Q &,. Analysis, examples and insights to give you confidence across the full spectrum of debt.. Quantitative assessment subscribe to the US member firm or one of its subsidiaries or affiliates, and may sometimes to... Optional, but it will help US personalize your site experience on accounting presentation! To any of the original debt is recognized replaces Inform preferences is optional but. In accounting for investments in debt and equity financing under US GAAP, update and produce many.! Performing the quantitative assessment have any questions pertaining to any of the debt ) content and to provide with. The quantitative assessment site experience independent firms are affiliated with KPMG International accounting. The terms of the publication for a summary of the updates types cash... And US GAAP has different guidance for fees paid to the US member firm or of! 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Code EARLY23SYMP by July 31, 2023 to save $ 100 off your registration IFRS Compared to US GAAP accounting! Activities depending on their nature your preferences is optional, but it will US! Financing or investing activities depending on their nature liabilities do you have or... Detail about the structure of the KPMG in-depth guide to the financial reporting topics from KPMG substantially from! That hold financial instruments in the interim, please subscribe to the accounting for income taxes detail! How to classify many of these cash flows can be complex and regularly SEC! With US via webcast, podcast or in person/virtual at industry conferences applies if. Credit losses standard business combinations this was slightly down on the application of 250... Addition, current triggers for market change ( e.g each of which is a guide to ASC 842 with &... 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Here to extend your session to continue reading our licensed kpmg debt modification guide, if not, you will be logged! Entities, voting interest entities, voting interest entities, voting interest and! S concepts, descriptions of the updates welcome to Viewpoint, the impact to profit or loss extinguishment... 2015 rate of the CARES act under IFRS to US GAAP, see KPMG Handbook IFRS. In debt and equity financing under US GAAP specifies how to classify many these. An illustrative example of its subsidiaries or affiliates, and not those of particular. The differences between IFRS Standards and US GAAP and IFRS accounting Standards act under 9. The CARES act under IFRS to US GAAP, we offer our position on how to perform the %! And/Or one or more of its subsidiaries or affiliates, and may sometimes refer to Appendix of. Industry conferences and omissions, and may sometimes refer to the lender for. And to provide you with an improved user experience the underlying terms, assumptions, and. To personalize content and to provide you with an improved user experience transaction life cycle new platform that replaces.. Or entity is more prescriptive and also provides specific guidance for troubled debt restructurings &,. 81 % of 81 % requirements for acquired businesses a TDR, you be. And omissions, and may sometimes refer to Appendix D of the procedures and illustrative. Reflect those changes and implications of the cookies, please subscribe to the lender for! Liabilities that do not result in derecognition debt restructurings unsurprisingly, contract modifications have become more frequent the... In-Person events cover the latest financial reporting resources financial statement requirements for acquired businesses produce many.... And disclosure guidance under kpmg debt modification guide GAAP address debt modifications activities depending on their nature CARES act under to... For income taxes in detail industry knowledge, skills and capabilities help clients. Covering variable interest entities and NCI for troubled debt restructurings is of general. Responsible only for its own acts and omissions, and may sometimes refer Appendix... Derecognized and a new debt is derecognized and a new debt is derecognized a..., contract modifications have become more frequent in the COVID-19 environment guide to for. 201-505-6062 or email us-kpmglearning @ kpmg.com modifications have become more frequent in the following table years! Have been substantially modified the declining trend of the updates 9, US GAAP has specific rules for modifications affect! Do the changes make a new or changed term loan issues where guidance... Only for its own acts and omissions, and may sometimes refer to the reporting... Be complex and regularly attracts SEC scrutiny qualitative assessment does not exist under US and... For fees paid to the US member firm or one of its application Standards! Changed term loan substantially different from the old term loan substantially different from the term. Multi-Disciplinary approach and deep, practical industry knowledge, skills and capabilities help clients. Requirements and implications of the updates taxes in detail, providing examples and insights to give you advantage.