Navigating the accounting for debt modifications can be challenging. Crowe accounting professionals address some FAQs in this insight.
Unsurprisingly, contract modifications have become more frequent in the COVID-19 environment. One form of modification that has become commonplace during the pandemic is modifications to debt agreements. For example, given the business interruptions caused by COVID-19, a borrower and a lender might agree to defer or forgive certain principal and interest payments, reduce the stated interest rate, or change debt covenants or collateral requirements, among other things.
The following decision tree provides a high-level overview of the analysis used by borrowers to determine the accounting for modifications of debt arrangements: