The FASB has issued ASU 2022-02, which is intended to improve the decision usefulness of information provided to financial statement users about certain loan refinancings, restructurings, and write-offs by entities who have adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. 

ASU 2016-13 requires entities to recognize an allowance for expected credit losses based on a creditor’s current estimate of future cash flows to be collected from the financial instrument upon acquisition or origination. In addition, entities were subject to certain disclosure and reporting requirements if the loan was modified and classified as a troubled debt restructuring (TDR) under Subtopic 310-40, Receivables – Troubled Debt Restructuring by Creditors. ASU 2022-02 eliminates the accounting guidance under Subtopic 310-40 for TDRs, and entities must now apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 to 310-20-35-11 to determine whether a modification results in a new loan or continuation of an existing loan. In addition, ASU 2022-02 enhances disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Furthermore, ASU 2022-02 requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

For entities that have not yet adopted ASU 2016-13, the effective date of ASU 2022-02 would be the same as the effective date of ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2016-13. Entities may elect to early adopt the amendments about TDRs separately from the amendments related to the disclosure requirements of gross write-offs by year of origination.

An entity has the option to apply a modified retrospective method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption or to apply the amendments prospectively for changes to the recognition and measurement of TDRs. All other amendments in ASU 2022-02 should be applied prospectively upon adoption.

The full text of ASU 2022-02 is available here.

^{Readers should not act upon information presented without individual professional consultation.}