Lender accounting for COVID-19 loan modifications
Hot Topic | June 2020
Latest edition: Accounting considerations for COVID-19 loan modifications, including guidance on TDR determinations.
Lenders are providing relief to borrowers in consideration of the economic disruption caused by COVID-19. KPMG explains how to account for loan modifications, including whether they result in the loan being a troubled debt restructuring (TDR).
Applicability
- Companies that modify loans measured at amortized cost
Relevant dates
- Effective immediately
Key impacts:
- Accounting for loans due to COVID-19 depends in part on whether they represent troubled debt restructurings (TDRs). The CARES Act and a joint statement issued by federal banking regulators (Interagency Statement) may affect whether a lender accounts for a loan modification as a TDR.
- When a loan modification that is not a TDR includes a period of low (or no) interest, the lender may – but is not required to – limit interest income recognition if it would cause the loan’s carrying amount to exceed the amount at which the borrower could settle the loan.
Report contents
- Background and impacts
- Whether to account for a loan modification as a TDR
- Determining whether a modification results in a new loan
- Recognizing interest income during a payment holiday
- Expected credit losses
- Disclosure considerations
- Evolving information
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