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Making sense of new terminology for loan modifications

Sep 15, 2023
By: Stephanie Suchla

As a mom to four young kids, there is always chaos.

Children act based on how they feel about situations; when my 1-year-old gets frustrated, he has a tendency to fold up with his head on the floor. He then proceeds to crawl with his head still on the floor, crying until he manages to bump into something headfirst, and then acts confused about how the wall suddenly moved to hit him in the head.

He’s at the age when he knows he wants something but hasn’t yet figured out how to communicate to receive the help he needs. This may be the same feeling many of us have regarding CECL and the new terminology associated with the standard that has finally become reality.

Understanding the new standards

Accounting Standards Update (ASU) 2016-13 (Measurement of Credit Losses on Financial Instruments) and ASU 2022-02 (Troubled Debt Restructurings and Vintage Disclosures) are now in full effect for fiscal years beginning after December 15, 2022.

With these ASUs, there are many terminology and disclosure requirement changes. For example, many of us have heard that troubled debt restructurings (TDRs) have gone away. But the truth is that the terminology now refers to certain modifications of receivables made to borrowers experiencing financial difficulty.

The new terminology includes a lot of words; for simplification, we’ve been referring to these as troubled loan modifications (TLMs). TLMs include loan modifications to borrowers experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension or a combination thereof.  

Although the accounting requirements for TDRs have gone away, TLMs are still required to be tracked to ensure appropriate reporting in financial statement disclosures and, we believe, eventually, call reports.

And while we may all be at the frustrated stage and just want to cry with our heads down regarding the new standards and all the associated terminology related to CECL and troubled loan modifications, we can persevere through the first-year frustrations together.

How Wipfli can help

Struggling to understand the new accounting standards updates? Reach out to Wipfli.

Our experienced team is ready to help you with all aspects of CECL, including credit underwriting and analysis, financial reporting and validating your CECL model. Contact us today to learn more about our CECL support.

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Stephanie Suchla, CPA
Senior Manager
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