Financial institutions that acquire loans have voiced concerns about how current effected credit loss (CECL) accounting treated certain purchased assets. In response to this, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) in November 2025 which helps provide clarity and address concerns.

ASU 2025-08 provides relief to “double-counted” credit losses, bringing greater consistency, improved alignment with economic standings, and flexibility for institutions engaged in loan acquisitions.

Why ASU 2025-08 Matters

Previously, financial institutions were required to book a day-1 credit loss provision expense on qualifying non-credit purchase credit deteriorated (non-PCD) loans (under Accounting Standards Codification (ASC) Topic 326). Purchase credit deteriorated (PCD) loans on the other hand, required the usage of the gross-up approach, which did not require a day-1 credit loss provision.

Effective Date

ASU 2025-08 is effective for fiscal years beginning after December 15, 2026, but early adoption is permitted on a prospective basis only. This provides institutions time to evaluate whether early adoption aligns with their strategic and financial goals.

What Changes According to ASU 2025-08

This update introduces Purchased Seasoned Loans (PSL), a new category of purchased loans. PSLs can be acquired in a business combination or purchased 90+ days after origination (where the acquirer is not involved in the origination). They exclude credit card receivables, debt securities, or trade receivables, but can now also use the gross-up approach for day-1 accounting.

Using the gross-up approach, credit losses are recognized as a fair value adjustment to the loan’s cost basis instead of through earnings, improving alignment between pricing and accounting outcomes.

What You Should Act on Now

While the effective date is not until December, early planning can help you maximize the benefits. Here are some steps to take:

  • Review current loan policies for purchased loans.
  • Identify any loans that would qualify as PSLs and evaluate if early adoption would be beneficial.
  • Update your accounting policies and procedures to reflect the new classification.
  • Train teams across all affected departments on updated policies/procedures and impacts.

Reach out to a Pinion advisor to discuss how ASU 2025-08 could impact your loan acquisition strategy.