The standard setter releases new proposed accounting guidance to better define what is – and is not – a troubled debt restructuring.

Last month the Financial Accounting Standards Board issued a proposed guidance related to troubled debt restructuring that included several important clarifications for both debtors and creditors. The proposed accounting standards update (ASU), Clarifications to Accounting for Troubled Debt Restructurings by Creditors, was issued on October 12 and set forth criteria for determining when an arrangement between a debtor and creditor rises to the level of a so-called troubled debt restructuring or TDR. These clarifications, in general, will be effective for periods ending after June 15, 2011.

TDRs are restructurings in which 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. They are also a classification that engenders a special set of accounting rules.

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