Point of View | 8-10 Min Read
In today’s volatile economic environment, companies with outstanding debt are increasingly navigating complex restructuring situations. One of the most significant is a Troubled Debt Restructuring, where a creditor grants a concession to a debtor experiencing financial difficulty that would not normally be offered under standard lending terms. Understanding the accounting, governance, and strategic implications of a TDR can make the real difference between a company’s collapse and its comeback.
A TDR occurs when a creditor grants a concession to a debtor facing financial difficulty, a concession made to preserve as much of the creditor’s investment as possible. The underlying logic is straightforward: receiving partial repayment is better than receiving nothing at all. If modifying the original terms is the only realistic path for a lender to recover any portion of the outstanding debt, the lender may agree to a TDR rather than pursue default or foreclosure.
How TDR Accounting Actually Works: Debtor and Creditor Sides Are Different
Restructuring debt due to a borrower’s financial difficulty creates real accounting complexity, and the two sides of the transaction are governed by different guidance, a distinction worth being precise about.
On the debtor’s side, a company restructuring its own debt continues to apply ASC 470-60, Debt, Troubled Debt Restructurings by Debtors. This guidance remains active and governs how a debtor accounts for a modification of its own obligations, including situations involving a reduction of stated interest rate, extension of maturity date, reduction of face amount, or reduction of accrued interest.
On the creditor’s side, the picture changed significantly. FASB issued ASU 2022-02 in 2022, which eliminated the recognition and measurement guidance for TDRs by creditors entirely, for any entity that has adopted the Current Expected Credit Loss standard (ASC 326). This change is now fully implemented across the industry, effective for fiscal years beginning after December 15, 2022 for most entities that had already adopted CECL. Rather than classifying a modification as a TDR, creditors now evaluate loan modifications under ASC 310-20’s guidance on loan refinancing and restructuring, determining whether a modification represents a new loan or a continuation of an existing one, while providing enhanced disclosures under ASC 326-20 about modifications made to borrowers experiencing financial difficulty. In practice, this means the term “TDR” itself has largely retired from creditor-side financial reporting, even though the economic substance, a lender making concessions to a distressed borrower, is unchanged.
How US GAAP, IFRS, and IGAAP Compare on Debt Restructuring
Different accounting frameworks treat borrower distress restructuring in meaningfully different ways, and understanding these differences matters for any company or lender operating across jurisdictions.
| Framework | Terminology | Core Approach |
| US GAAP | Formally uses “Troubled Debt Restructuring” on the debtor side (ASC 470-60); creditor side now uses modification and impairment guidance (ASC 310-20, ASC 326) following ASU 2022-02 | Distinct debtor-specific TDR classification; creditor treatment folded into general modification and credit loss framework |
| IFRS | Does not use the term TDR explicitly | Addressed through IFRS 9’s financial instrument modification and derecognition guidance, testing whether a modification is substantial enough to require derecognition of the original liability and recognition of a new one |
| Indian GAAP (IGAAP) / Ind AS | Does not use the term TDR explicitly | Addressed through Ind AS 109’s modification and derecognition framework, broadly aligned with IFRS 9, alongside sector-specific regulatory frameworks such as RBI’s prudential norms on restructuring for regulated lenders |
The practical takeaway: US GAAP is the only major framework that names and separately codifies TDR treatment, and even within US GAAP, that separate treatment now applies only to the debtor’s side of the transaction. IFRS and IGAAP fold economically similar situations into their broader financial instrument modification standards rather than creating a distinct restructuring classification.
Why This Distinction Matters for Companies and Lenders
For companies preparing to restructure debt, understanding which side of the transaction you sit on, and which guidance actually applies, is not a technicality. A debtor restructuring its own obligations still walks through ASC 470-60’s specific criteria and disclosure requirements. A creditor extending concessions no longer classifies that concession as a TDR for recognition and measurement purposes, but still faces meaningful new disclosure obligations under ASC 326-20 about the nature and financial effect of the modification.
Companies operating across US GAAP, IFRS, and IGAAP reporting environments simultaneously, such as multinational groups with both US and Indian subsidiaries, need to apply the correct framework-specific test to each entity’s restructuring, since the frameworks do not map onto each other cleanly despite addressing similar economic events.
Frequently Asked Questions
What is a Troubled Debt Restructuring? A TDR occurs when a creditor grants a concession to a debtor experiencing financial difficulty that would not normally be offered under standard lending terms, made to preserve as much of the creditor’s investment as possible rather than risk receiving nothing.
Does ASC 470-60 govern creditor accounting for TDRs? No. ASC 470-60 governs the debtor’s accounting for a troubled debt restructuring. Creditor-side TDR recognition and measurement guidance was eliminated by ASU 2022-02 for entities that have adopted CECL, replaced by modification accounting under ASC 310-20 and disclosures under ASC 326-20.
What changed under ASU 2022-02? ASU 2022-02 eliminated troubled debt restructuring recognition and measurement guidance for creditors that have adopted the Current Expected Credit Loss standard, requiring them instead to evaluate modifications under general loan refinancing and restructuring guidance while disclosing enhanced information about modifications to borrowers experiencing financial difficulty.
Does IFRS use the term Troubled Debt Restructuring? No. IFRS addresses economically similar situations through IFRS 9’s modification and derecognition guidance, testing whether a debt modification is substantial enough to require derecognizing the original liability and recognizing a new one, without a separately named TDR classification.
How does Indian GAAP treat debt restructuring for distressed borrowers? Indian GAAP, through Ind AS 109, addresses debt modification through a derecognition and modification framework broadly aligned with IFRS 9, and regulated lenders are additionally subject to RBI’s prudential norms on restructuring.
Who needs to understand the TDR accounting distinction between debtors and creditors? CFOs and finance teams of companies restructuring their own debt, credit and finance teams at lending institutions extending concessions, and auditors and advisors working across US GAAP, IFRS, and IGAAP reporting environments all need clarity on which side of a restructuring they are accounting for and which guidance applies.
Get the Full Point of View
This overview covers the key accounting and framework distinctions in debt restructuring. The complete point of view includes deeper guidance on governance considerations, strategic implications, and practical steps for companies navigating a restructuring situation.
Navigating a debt restructuring situation or preparing disclosures under the current TDR and modification accounting framework? Pierag’s Accounting Advisory practice helps companies and lenders apply the correct guidance across US GAAP, IFRS, and IGAAP reporting environments. Talk to our team about your restructuring and reporting needs.
Related reading: Standard Setters’ Updates, H2 2025 Edition | Understanding DISE: Disaggregation of Income Statement Expenses
