The FASB has issued new guidance to simplify the accounting for purchased loans, aiming to enhance comparability and consistency while reducing complexity for stakeholders.
Key Points
•📅 Effective Date: New guidance published on November 12, 2025
•📉 Simplification: Aims to reduce complexity in accounting for acquired financial assets
•💼 Stakeholder Feedback: Changes driven by concerns from stakeholders
•🔄 New Approach: Introduces 'purchased seasoned loans' concept
•🌐 More Info: Full details available on the FASB website
🔍 What's the Big Deal?
Since the credit losses standard was issued in 2016, the Financial Accounting Standards Board (FASB) has been keeping an eye on how well stakeholders were implementing it. Many in the field raised concerns about the accounting for acquired financial assets, particularly the distinction between purchased credit-deteriorated (PCD) and non-PCD assets. This distinction was seen as unnecessarily complex and reduced comparability.
📉 Breaking Down the Changes
Under the old Generally Accepted Accounting Principles (GAAP), acquired financial assets had to be recorded at their amortized cost basis with an allowance for expected credit losses recognized separately. This dual approach was seen as subjective and inconsistent, often resulting in double counting expected credit losses for non-PCD assets.
The new Accounting Standards Update (ASU) aims to simplify this by expanding the population of acquired financial assets accounted for using the 'gross-up approach.' Essentially, if the new criteria are met, acquired loans (excluding credit cards) will be considered purchased seasoned loans and accounted for using this approach. This change is designed to enhance comparability and consistency, reflecting the true economics of acquiring financial assets.
💼 Stakeholder Driven
The changes come directly from feedback during the post-implementation review (PIR) process. Stakeholders highlighted that the existing guidance was too complicated and inconsistent. By listening to these concerns, the FASB aims to make the accounting for acquired financial assets more straightforward and less prone to subjective interpretation.
🌐 Where to Find More Info
For those looking to dive deeper, the full Accounting Standards Update (ASU), including transition and effective date information, is available on the FASB website. You can find all the nitty-gritty details there and ensure your accounting practices are up to date with the latest standards.
