Executive Director, Dept. of Professional Practice, KPMG US
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).
Companies that modify loans measured at amortized cost
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.
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