Debt and equity financing under US GAAP 2021 KPMG Handbook. This Handbook provides an in-depth look at statement of cash flows classification issues and noncash disclosure requirements. Do our capital management plans align with our long-term strategic objectives? Are you still working? For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. Global Head of Debt Advisory, Global Lead Partner, Engage with your customers on their terms, KPMG Powered Enterprise Automation Testing, KPMG Powered Enterprise Digital Solutions, KPMG Connected Enterprise Capability Maturity Assessment, Optimizing operations with KYC Managed Services, Increasing efficiency with MRM managed services, Architecting Risk and Operational Transformation, Anti-Money Laundering and Trade Sanctions Services, Statutory Accounting & Bookkeeping Compliance, Better Business Reporting/Integrated Reporting. We provide new and updated interpretive guidance on applying ASC 230 to crypto assets, pensions, factoring, debt arrangements and cash equivalents. Partner, Dept. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. Both IFRS Standards and US GAAP address debt modifications. Generally, include in the gain or loss on extinguishment. 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. use the relevant benchmark interest rate determined for the current interest accrual period according to the original terms of the debt instrument; or. US GAAP specifies how to perform the 10% test; IFRS 9 is less prescriptive. 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%. * For more information, call 201-505-6062 or email us-kpmglearning@kpmg.com. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Debt Restructuring Under IFRS 9: Changes You May Have Missed. Informing your decision-making. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. Delivering insights to financial reporting professionals. Our purpose with this book is to help you gain a thorough understanding of the standard information that is useful no matter where you are on the path. Do the changes increase the borrowing capacity of a line-of-credit or revolving debt arrangement. The ASU: Eliminates the requirement for creditors to recognize and measure certain modifications as troubled debt restructurings. Select a section below and enter your search term, or to search all click Latest edition: We explain the equity method of accounting in detail, providing examples and analysis. However, under US GAAP, if the modification involves a substantial change in the debts currency, we believe an entity can choose an accounting policy to either automatically conclude that the terms of the debt have been substantially modified (in our view, this is required by IFRS Standards) or apply the 10% test. A reporting entity should also derecognize a debt instrument (and recognize a new one) when a debt modification or exchange is deemed an extinguishment. the financial liability). legal fees) which may result in differences in practice. Any change to the amortised cost of the financial liability is required to be recognised within profit or loss at the date of the modification. When the borrowing capacity increases or remains the same, all such fees or costs (including unamortized deferred costs as well as costs paid at the time of modification) are deferred and amortized over the term of the new arrangement. Latest edition: Our comprehensive guide to ASC 280 with analysis, Q&As and examples. Our new guide explains the measurement and reporting of GHG emissions through the lens of the Greenhouse Gas Protocol. Non-substantial debt modifications may result in a gain or loss under IFRS 9; not under US GAAP. In our view such a modification is also substantial under IFRS Standards. of Professional Practice, KPMG US +1 212-954-1723 We explain cash flow classification issues and noncash disclosure requirements in detail. Explore the topics at the Financial Reporting View. Latest edition: KPMG explains the accounting for income taxes in detail, providing examples and analysis. Partner, Dept. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. KPMGs guide provides interpretive guidance, including Q&As and illustrative examples, on the application of ASC 853. #Audit #kpmgfrv Sharing our expertise and perspective. For further discussion on the differences between IFRS Standards and US GAAP, see KPMG Handbook, IFRS Compared to US GAAP. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. A reporting entity may modify the terms of its outstanding debt by restructuring its terms or by exchanging one debt instrument for another. 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. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Similarly, the impact to profit or loss differs based on whether the terms of the original debt have been substantially modified. Applicability All companies with debt that could potentially be modified Contents Topics to be discussed include: Troubled debt restructurings Accounting for term debt modifications In August, 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, resulting in the most substantial changes to this accounting standard in many years. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. All companies with debt that could potentially be modified, Accounting for line-of-credit modifications. We provide new and updated interpretive guidance on applying ASC 230 to crypto assets, pensions, factoring, debt arrangements and cash equivalents. KPMG does not provide legal advice. Adjust the carrying amount of the original debt and amortize over its remaining term (i.e. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Delivering insights to financial reporting professionals. Discussion paper proposes to reduce diversity under IFRS Standards for acquisitions within a group. All rights reserved. Step 3: Determine the transaction price. Appendix F provides a summary of the . Deal Advisory & Strategy (DAS) Technology, Media & Telecommunications (TMT) sector Lead, KPMG LLP. All rights reserved. Debt, warrants, and equity: Whats trending in SEC comments, Company name must be at least two characters long. All rights reserved. Delivering insights to financial reporting professionals. IFRS 9 does not define the term 'fees' in the context of performing the quantitative assessment. See FG 3.4 for information on modifications and exchanges of term loans and debt securities, and FG 3.6 for information on modifications and exchanges of loan syndications and participations. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. black creek industrial reit iv inc. up to $2,000,000,000 of common stock: class t shares . Latest edition: Applying fair value measurement and disclosure guidance under US GAAP and IFRS Accounting Standards. Latest edition: KPMG explains accounting for share-based payments. 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. Using Q&As and examples, KPMG provides interpretive guidance on debt and equity financings. Applicability ASC 230 All companies Enhances the disclosures by creditors for certain modifications of receivables to debtors experiencing financial difficulty. What are my restructuring and recapitalization options. Connect with us via webcast, podcast or in person/virtual at industry conferences. 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. NOTE: This course is currently being modified and updated for accounting standard updates. ; Special pricing is available for KPMG Alumni No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. As used in this Item 5.F.1, the term purchase obligation means an agreement to purchase goods or services that is enforceable and legally binding on the company that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.. G. Safe harbor. 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 . The first comprehensive accounting and reporting guidance on investments in debt and equity securities was issued in 1993. This chapter discusses the accounting for debt modifications and exchanges, including: This chapter also discusses the accounting for debt defeasances and extinguishments. Latest edition: Our comprehensive guide to the statement of cash flows, with Q&As and examples to explain key concepts. KPMG does not provide legal advice. The adjustment to the debt carrying amount. 1. If not, the accounting outcomes depend on whether the nontroubled modification is substantial, similar to IFRS Standards. Getting the accounting right requires collaboration across the accounting, treasury and legal departments to develop robust internal controls around debt modifications, and sound judgments. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. Debt modifications: IFRS Standards vs US GAAP. Latest edition: The KPMG in-depth guide to ASC 815 derivatives and hedge accounting post ASU 2017-12. Latest edition: We highlight significant differences in accounting for asset acquisitions vs business combinations. 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. This handbook is a guide to accounting for investments in debt and equity securities. These may include changes in principal amounts, maturities, interest rates, prepayment options and other contingent payment terms. The accounting change has been particularly impactful to institutions with significant lending activities or investments in debt securities. We explain cash flow classification issues and noncash disclosure requirements in detail. In-depth guide on presentation and disclosure requirements under US GAAP, plus considerations under SEC regulations. Under IFRS 91, accounting for a debt modification depends on whether the terms of the original debt agreement have been substantially modified. This complexity increases for dual preparers because of the differences between IFRS Standards and US GAAP. In-depth guidance on, and interpretation of, ASC 326. 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. This March 2023 edition incorporates guidance on the disclosure of supplier finance program obligations (ASU 2022-04), plus other new and updated interpretations. Scope. Each member firm is a separate legal entity. Explore the topics at the Financial Reporting View. 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? Explore the topics at the Financial Reporting View. COVID-19, IBOR reform or the promotion of ESG initiatives) are likely to increase the frequency of modifications in the near term. Our in-depth guide has been updated to reflect those changes. This one focuses on accounting for debt modifications. In terms of student enrolments, 2016 saw a reversal of the declining trend of the past few years. 6. All rights reserved. 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. Raising new debt on favorable terms or renewing existing facilities can be challenging even for the strongest borrowers and issuers. Do the changes make a new or changed term loan substantially different from the old term loan? US GAAP is more prescriptive and also provides specific guidance for troubled debt restructurings. Creating valuable breathing space in a COVID-19 world. KPMG does not provide legal advice. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. 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. KPMG does not provide legal advice. 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. To increase the frequency of modifications in the near term # audit # kpmgfrv Sharing our expertise perspective. Declining trend of the KPMG in-depth guide has been particularly impactful to institutions significant... Information without appropriate Professional advice after a thorough examination of the particular.. This course is currently being modified and updated interpretive guidance on investments in debt and amortize over its remaining (! 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