United States

Temporary relief for financial institutions: TDR accounting

FINANCIAL REPORTING INSIGHTS  | 

The recently enacted Coronavirus Aid, Relief, and Economic Security Act provides financial institutions optional temporary relief from troubled debt restructuring (TDR) and impairment accounting requirements for certain loan modifications related to the COVID-19 pandemic. Per Section 4013 of the Act, during the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020 or 60 days after the national emergency concerning COVID-19 declared by the President terminates, a financial institution may elect to suspend:

  • Application of Subtopic 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification to loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR; and
  • Any determination of a loan modified as a result of the effects of the COVID-19 pandemic as being a TDR, including impairment for accounting purposes.

The election of any such suspension would be applicable for the term of the loan modification but solely with respect to any modification (including a forbearance arrangement, an interest rate modification, a repayment plan and any other similar arrangement that defers or delays the payment of principal or interest) that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. Financial institutions should maintain records of the volume of modified loans for which suspensions are elected.

The ability to suspend TDR accounting does not apply to any adverse impact on the credit of a borrower that is not related to the COVID-19 pandemic nor does it apply to borrowers. The Act does not specifically define the financial institutions that are subject to the scope of this relief. Entities are encouraged to stay abreast of future developments related to the interpretation and application of this relief, including any actions that the FASB may take as a consequence of the Act.   

In addition to the relief offered by the Act, federal banking agencies also issued FIL-22-2020, containing interpretive guidance on TDR accounting. Insured depository institutions may find this guidance helpful as well.


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