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Chapter 4 — Measurement of Expected Credit Losses

4.7 Considerations Related to TDRs Under ASC 326 Before the Adoption of ASU 2022-02

4.7 Considerations Related to TDRs Under ASC 326 Before the Adoption of ASU 2022-02

ASU 2016-13 does not affect the guidance in ASC 310-40 on identifying whether a modification is a TDR. That is, an entity would still continue to apply the guidance in ASC 310-40-15-5 that states that “[a] restructuring of a debt constitutes a troubled debt restructuring . . . if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.” Consequently, the CECL model will not affect an entity’s (1) process for determining whether a concession has been granted to the borrower as part of a modification, (2) analysis of whether the borrower is experiencing financial difficulty, and (3) accounting for the TDR on an individual loan basis.13

Footnotes

13
Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provides temporary relief from the accounting and reporting requirements for TDRs with respect to certain loan modifications related to COVID-19 that are offered by insured depository institutions and credit unions. See Section 10.3.5.3 for more information.
15
Under ASU 2022-02, an entity is no longer required to use a DCF method (or reconcilable method) to measure the allowance for credit losses as a result of a modification or restructuring with a borrower experiencing financial difficulty.
16
ASU 2022-02 requires entities to evaluate all receivable modifications under ASC 310-20-35-9 through 35-11 to determine whether a modification made to a borrower results in a new loan or a continuation of the existing loan. In addition, an entity that employs a DCF method to calculate the allowance for credit losses will be required to use a postmodification-derived EIR as part of its calculation in accordance with ASC 326-20-30-4.