The FASB just rolled out new guidance to simplify how companies measure credit losses for accounts receivable and contract assets, making life a bit easier for private companies.
Key Points
•🗓️ Date: July 30, 2025
•🧾 New Guidance: Optional expedient for estimating credit losses
•🏢 Key Players: FASB and PCC
•📉 Impact: Reduced time and effort for companies
•💡 Focus: Practical solutions for private entities
📜 The Announcement
Norwalk, CT – July 30, 2025 – The Financial Accounting Standards Board (FASB) has just issued an Accounting Standards Update (ASU) to improve how companies measure credit losses for accounts receivable and contract assets. The new guidance, although optional, aims to alleviate the headaches companies face when applying Topic 326, Financial Instruments—Credit Losses, to their accounts receivable and contract assets.
🤔 Why the Change?
The Private Company Council (PCC) kicked off this update in response to feedback from private company stakeholders. These entities found the cost and complexity of creating a reasonable forecast for credit losses quite taxing. The significant effort required to estimate and record expected credit losses for current accounts receivable and contract assets before financial statements are issued was a major pain point.
🔧 The Solutions
To tackle these challenges, the ASU amendments provide:
A practical expedient for all entities to assume that current conditions as of the balance sheet date remain unchanged for the asset's life.
An accounting policy election for non-public entities to consider post-balance sheet date collection activity when estimating credit losses for accounts receivable and contract assets from transactions under Topic 606.
💼 The Impact
The new ASU is designed to cut down the time and effort needed to estimate these credit losses, all while continuing to provide decision-useful information to investors and other financial statement users. It's a win-win for both companies and their financial statement viewers.
