The Financial Accounting Standards Board (FASB) recently met to redeliberate its proposed Accounting Standards Update (ASU) for Financial Instruments — Credit Losses (Topic 326): Purchased Financial Assets. The board aimed to improve the accounting for the acquisition of purchased financial assets, excluding those with credit deterioration (PCD), through narrow amendments to the current guidance. These amendments will apply to loan receivables (excluding credit cards) but will not affect held-to-maturity (HTM) debt securities. 

A Welcomed Change 

This update represents a significant and welcomed change from the current guidance, as it simplifies the accounting for acquired loan receivables and reduces the immediate financial impact on acquisition. By allowing the gross-up approach for all acquired loan receivables deemed “seasoned,” financial institutions can now benefit from a more streamlined and less burdensome accounting method. 

Under the current guidance, non-PCD loans are initially recorded at the purchase price, and an allowance for credit losses (ACL) is separately recorded through a charge to credit loss expense, which can result in a significant expense to the acquirer on the acquisition date of non-PCD loans. 

This change allows the gross-up approach, previously permitted only for PCD loans, to be applied to all “seasoned” loans receivable. Under the gross-up approach, an acquirer recognizes an ACL through a corresponding increase to the amortized cost basis of the acquired loans upon acquisition, resulting in no day one credit loss expense as previously required. 

Key Decisions Made 

• Seasoning Criteria Affirmed: The Board confirmed the proposed "seasoning criteria" for loan receivables. A loan is considered seasoned if: 
• It is acquired through a business combination under Topic 805. 
• It is acquired more than 90 days after its origination date and the acquirer did not have involvement with the origination. 
• Initial Amortized Cost Basis: For seasoned loan receivables (excluding credit cards), the initial amortized cost basis will be calculated as the purchase price, plus the initial allowance for credit losses. 
• Interest Method: The interest method will be used to recognize non-credit discount or premium on seasoned loan receivables (excluding credit cards). 
• Accruing Interest Income: Entities should not apply certain guidance for accruing interest income on seasoned loan receivables (excluding credit cards). 
• Estimating Expected Recoveries: Entities should not apply certain guidance when estimating expected recoveries to measure expected credit losses on seasoned loan receivables (excluding credit cards). 
• Allowance for Credit Losses: Entities are provided with an option to remeasure the allowance for credit losses by aggregating seasoned loan receivables (excluding credit cards) and existing financial assets based on similar risk characteristics when expected credit losses are estimated using a method other than a discounted cash flow. 
• Disclosure Requirements: The board decided not to amend the disclosure requirements of Topic 326. 

Implementation Timeline 

The amendments will be applied prospectively for annual reporting periods beginning after Dec. 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted for any annual or interim reporting period for which the entity’s financial statements have not yet been issued. 

The board has directed the staff to draft a final ASU for a vote by written ballot. 

Here to Help 

Need assistance navigating these changes? Doeren Mayhew’s pros are here to help. Rely on us to help you traverse these changes, ensure compliance and optimize your financial reporting processes. We offer tailored solutions to help financial institutions seamlessly transition to the new standards, minimize disruptions and maximize efficiency.