In today’s volatile economic environment, companies with outstanding debt are increasingly navigating complex restructuring situations. One of the most significant among these is the Troubled Debt Restructuring (TDR) under ASC 470-60, where a creditor grants a concession to a debtor experiencing financial difficulty. Understanding the accounting, governance, and strategic implications of a TDR can make the difference between a company’s collapse and its comeback.
A TDR occurs when a creditor grants a concession to a debtor who is facing financial difficulty—concessions that would not normally be offered under standard lending terms. These concessions are made to preserve as much of the creditor’s investment as possible. The rationale is that receiving partial repayment is better than receiving nothing at all. Therefore, if modifying the original terms is the only realistic way for a lender to recover any portion of the outstanding debt, the lender may agree to a TDR.
From a financial reporting perspective, restructuring debt due to a borrower’s financial challenges creates significant accounting issues. Different accounting frameworks treat these situations in varied ways, especially when creditors grant concessions that would not otherwise be considered. Under US GAAP, these cases are formally classified as Troubled Debt Restructurings (TDRs) and are governed by specific guidance under ASC 470-60.
In contrast, IFRS and Indian GAAP (IGAAP) approach such events more broadly through financial instrument or impairment standards, without explicitly using the term TDR. To highlight the differences, the following table provides a comparative overview of how these frameworks address debt restructuring in situations of borrower distress.
