In April 2025, the Financial Accounting Standards Board (FASB) proposed significant updates to the accounting treatment of purchased financial assets under the Current Expected Credit Loss (CECL) model. The changes aim to simply the guidance and reduce the risk of double-counting credit losses, particularly for non-PCD (purchased credit deteriorated) assets.
Here is a brief overview of the current guidance, the expected changes and how they may impact you.
A Quick Look at the Current Guidance
Under the current guidance in ASU 2016-13, PCD assets are accounted for using the gross-up method, which incorporates expected credit losses into the purchase price. In contrast, non-PCD assets require an allowance for credit losses to be recognized at acquisition, which can result in duplicative loss recognition.
What Is Changing?
The revision keeps the existing treatment for PCD assets but introduces a second option for certain non-PCD assets. If specific criteria are met, these assets may also qualify for the gross-up method. The criteria include:
- The asset was originated without the acquirer’s involvement and transferred more than 90 days after origination, or
- The asset was acquired through a business combination and is deemed “seasoned”.
What This Means for You
If finalized, these changes could reduce operational burdens and improve the comparability of financial statements by aligning the accounting treatment of more purchased assets with their economic substance. Institutions may need to reassess their acquisition accounting processes and systems to determine eligibility under the new criteria.
Need Help Navigating the Changes?
Our team is here to help you interpret and implement these evolving updates with clarity and confidence. Contact a Pinion financial institutions advisor with any questions or to discuss how these proposed changes may affect your institution.
