Why is the FASB Issuing This Accounting Standards Update (ASU)?

On November 12, 2025, the FASB issued ASU 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans to improve the accounting for purchased loans and address concerns raised by stakeholders since the issuance of the credit losses standard within Topic 326.  Many stakeholders found that the credit losses standard for acquired financial assets, specifically having two distinct acquisition approaches for purchased credit-deteriorated (PCD) and non-PCD assets, created unnecessary complexity and reduced comparability.  

Under current generally accepted accounting principles (GAAP), acquired financial assets are initially recorded at their amortized cost basis, with an allowance for expected credit losses (allowance) recognized separately. For financial assets acquired with “more-than-insignificant” deterioration of credit quality since origination, they are accounted for as purchased financial assets with credit deterioration (PCD assets). The process for PCD assets uses a “gross-up approach” to record the initial allowance through an adjustment to the initial amortized cost basis, while the initial allowance for non-PCD assets requires a direct charge to credit loss expense. This dual approach was seen as subjective, inconsistently applied, and resulted in double counting expected credit losses for non-PCD assets.

What Are the Main Provisions?

This ASU addresses the concerns noted above by expanding the population of acquired financial assets accounted for using the “gross-up approach”.  Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the “gross-up approach” upon acquisition if criteria established by the new guidance are met.  

Who is Affected by the Amendments in This ASU?

This ASU applies to all entities subject to Topic 326 and more directly impacts entities that acquire loans, such as financial institutions, through activities such as acquisitions and mergers.

When Will the Amendments Be Effective and What Are the Transition Requirements?

The amendments in this ASU are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. 

The amendments in this ASU should be applied prospectively to loans that are acquired on or after the initial application date. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in an interim reporting period, it should apply the amendments as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period.

Read the full ASU here: ASU 2025-08

How Can AHP Help?

AHP is proud to have been serving the Midwest region since 1993.  Among the many industries we serve, we have a strong, dedicated team focused on serving financial institutions.  Our professionals understand the unique accounting, regulatory, and operational challenges community banks and credit unions face, and we are committed to providing practical insights that help you navigate change with confidence.

Whether you are looking for guidance on implementing new accounting standards, support with mergers and acquisitions, assistance with CECL questions, independent CECL model validations, or other audit or accounting assistance, our team is here to help.  If you would like to discuss how this new ASU may affect your organization or explore how we can support your goals, please contact Rebekah Kilpatrick, CPA, CRCM or reach out to your AHP representative. We look forward to continuing to serve and support the financial institutions that strengthen our communities.