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Accounting for TDRs ending for CECL adopters

Mary Ellen Biery
April 1, 2022
Read Time: 0 min

FASB ends TDR accounting for CECL users; may consider idea to end for others, too

The FASB's latest Accounting Standard Update creates a single model for measuring and disclosing loan modifications under CECL, eliminating accounting for TDRs. 

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Burdensome TDR accounting ending

Burdensome accounting for TDRs, or troubled debt restructurings, is about to be a thing of the past for financial institutions using the current expected credit loss model, or CECL.

In addition, the Financial Accounting Standards Board (FASB) will be asked at its upcoming meeting to consider letting all financial institutions scrap TDR accounting – even those that haven’t yet adopted CECL.

Creditors said

Accounting for TDRs: unnecessary complexity

The FASB on Thursday issued a final Accounting Standards Update (ASU) walking back CECL requirements that creditors designate certain loan refinancings, restructurings, and write-offs as TDRs. The TDR label triggers specific loss recognition and measurement, along with disclosures for the remaining term of the loan. By amending CECL with the ASU, FASB will allow CECL adopters to use a single model for loan modification accounting. Creditors will, however, have to provide enhanced CECL disclosures for certain modifications to borrowers experiencing financial difficulty.

Financial institutions and others have argued since CECL was issued that the new life-of-loan estimation of losses already incorporated most of the allowance impacts of impaired credits labeled as TDRs. As a result, they said, the TDR designation and its related accounting requirements added unnecessary complexity. Financial statement users also told the FASB during its CECL feedback process that the dual method of accounting didn’t supply them much especially useful information.

Creditors added disclosures

Congress suspended TDR accounting during pandemic.

The issue was highlighted during the pandemic when Congress suspended TDR accounting requirements for loan modifications made as a result of COVID-related hardships to encourage banks and credit unions to work with borrowers to avert defaults. Many institutions began using disclosures in financials to report on loan modifications and continued to provide details that way throughout the pandemic.

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Financial statement users told FASB those details were more useful than the old reporting under TDR accounting.

The FASB ultimately agreed.

New standard

Will CECL 2023 adopters be able to scrap accounting for TDRs?

Smaller institutions adopting CECL in 2023 had contended that they, too, should be allowed to scrap TDR accounting. But the ASU issued Thursday excludes those that haven’t yet adopted the new accounting standard.

However, the FASB has received an agenda request “regarding a practical expedient for an option for all entities to not apply the recognition and measurement guidance on” TDRs, according to its April 6 meeting agenda. The board will discuss the topic at the meeting.

Additional details were not immediately available.

Whether an institution has already adopted CECL or plans to implement the standard in 2023, automating the allowance will make it easier to generate required disclosures  -- whether they are for TDR accounting, loan modifications under the new ASU, details on the decision-making behind methodology selection, or other issues that need to be defensible and documented for auditors and examiners.

Current period only

CECL disclosures of gross write-offs

Also in the ASU that FASB issued Thursday were requirements related to disclosing gross write-offs by year of origination. A public business entity is required to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases – something numerous investors told the FASB was essential to analyzing financial statements. The board at one point considered requiring cumulative gross write-offs and recoveries by year of origination but received feedback that having details on current-period write-offs was the most beneficial to investors and other people reading financial statements.

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About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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