FASB to End Troubled Debt Restructuring Accounting for CECL Adopters

As advocated by the American Bankers Association, the Financial Accounting Standards Board today announced that it would end troubled debt restructuring accounting for companies that have already adopted the current expected credit loss accounting standard. Instead, institutions will be required to evaluate whether a loan modification represents a new loan or a continuation of an existing loan.

In addition, today’s changes enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The changes will be effective for CECL adopters for fiscal years beginning after Dec. 15, 2022.

ABA SVP Mike Gullette called FASB’s action “a major step in the right direction,” noting that “accounting for troubled debt restructurings is not only operationally onerous and often confusing to investors, it also is unnecessary under CECL, which requires the lifetime credit loss measurement.”

“With the scheduled 2023 effective date of CECL for all banks fast approaching, ABA calls on FASB to allow banks that haven’t yet adopted CECL to also forego TDR accounting for the remainder of the year,” Gullette added. “Without this common-sense change, banks will be forced to perform these intense processes only to unravel the treatment several months later. We urge FASB to take this important step, which would allow banks to focus on serving their customers while better preparing for their CECL adoption.”

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