Substantial modification

Financial reporting - financial assets - financial liabilities - renegotiation - modification - International Financial Reporting Standards (IFRS) - IFRS 9.

Under IFRS 9 (Appendix B - Application guidance - paragraph 3.3.6) a modification is substantial if there is a difference of 10% or more in the discounted present value of the cash flows under the new terms, compared with the original terms.

A substantial modification is accounted for as an extinguishment.

Accounting and tax surprises under IFRS 9

"Corporate borrowers often need to renegotiate their existing loan liabilities, and in many companies this responsibility will fall on the treasurer.

Although treasurers may not necessarily be accounting experts, they still need to carefully consider the potential accounting impacts when renegotiating loan terms.

Under IFRS 9: Financial Instruments, loan modifications can trigger gains and losses for financial reporting purposes and may even have tax implications."

Renegotiating a loan? Get the accounting right - Kern Roberts, managing director, global accounting practice lead Chatham Financial.

See also

• Derecognition
• Derivative instrument
• Discounted cash flow
• Extinguishment
• Fair Value Adjustment
• Financial asset
• Financial instrument
• Financial liability
• Hedge accounting
• IAS 32
• IAS 39
• IFRS 9
• IFRS 9 hedge accounting reforms: a closer reflection of risk management?
• IFRS 15
• Impairment
• International Financial Reporting Standards (IFRS)
• Modification
• Modification gain or loss
• Non-substantial modification
• Present value
• Recognition
• Set-off

Other resources

• IFRS 9 summary - IAS Plus
• IFRS 9 full text - IFRS webpage
• Renegotiating a loan? Get the accounting right - Kern Roberts, managing director, global accounting practice lead Chatham Financial