May 2025 Financial Reporting, Governance, and Risk Management

Message from Sydney Garmong, Partner, National Office

This month brought the Federal Deposit Insurance Corp. (FDIC) 2025 “Risk Review.” The 49-page report provides an overview of conditions and banking performance, market risks, and credit risks. Last month, the Federal Reserve (Fed) issued its semiannual “Financial Stability Report” for April 2025. The 69-page report covers asset valuations, borrowing by businesses and households, leverage in the financial sector, funding risks, and near-term risks to the financial system.

In exciting news from Norwalk, Connecticut, the Financial Accounting Standards Board (FASB) voted on April 30 to proceed with issuing a final standard on purchased financial assets (PFAs). This is welcome news to acquisitive institutions as the standard largely fixes the “double count” issue under the current expected credit losses model. In more good news, early adoption will be permitted, even for 2025 acquisitions that close prior to issuance of the standard. Based on the number of questions we are getting, this provision is receiving high interest. We have published an article, “FASB Moves Ahead With Purchased Financial Assets Standard,” and we plan to update accordingly based on future questions.

With Paul Atkins sworn in as SEC chair on April 21, priorities of the Securities and Exchange Commission (SEC) will continue to unfold. Speaking of priorities, the SEC’s focus on crypto-related issues continued throughout April and early May 2025 through a series of Crypto Task Force roundtables and public remarks from Atkins and Commissioners Hester Peirce and Mark Uyeda. We also observe change in posture at the federal banking agencies with the Office of the Comptroller of the Currency clarifying crypto asset custody services and the Fed and FDIC withdrawing their crypto asset and dollar token guidance.

We wish you a safe and enjoyable Memorial Day weekend. For my fellow Hoosiers and all racing enthusiasts, I hope you enjoy the Indy 500, scheduled for Sunday.

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From the federal financial institution regulators

FDIC publishes annual risk review

On May 13, 2025, the Federal Deposit Insurance Corp. (FDIC) released its annual “Risk Review.” It provides a comprehensive assessment of the U.S. banking industry’s performance and challenges in 2024, with a focus on market and credit risks. It reports that banks remained resilient in 2024, but they faced rising risks from high interest rates, an inverted yield curve, and weakening loan quality – especially in commercial real estate and consumer lending.

Fed releases semiannual stability report

On April 11, 2025, the Federal Reserve Board (Fed) released its semiannual “Financial Stability Report.” It notes strong capital levels at most banks, elevated asset valuations, leverage among nonbank financial entities, and geopolitical tensions, among other assessments and vulnerabilities.

OCC issues interim final rule reversing recent changes to bank merger policies

On May 8, 2025, the Office of the Comptroller of the Currency (OCC) issued an interim final rule amending its 2024 final rule on business combinations involving national banks and federal savings associations. This interim rule reinstates streamlined application procedures and expedited reviews for transactions evaluated under the Bank Merger Act.

OCC announces organizational restructuring

On April 16, 2025, the OCC announced changes to its organizational structure, including combining supervision of midsize and community banks with supervision of large banks to create one bank supervision and examination business line. The stated goal of the changes is to enable supervision to evolve to better address today’s challenges and leverage opportunities for efficiency.

OCC issues RFI on community bank digitization

On May 5, 2025, the OCC issued a request for information (RFI) on key challenges and barriers faced by community banks when adopting and implementing digital banking solutions. The OCC expects the RFI to help the agency better understand obstacles to modernizing bank operations. Comments are due June 26, 2025.

OCC provides clarification on crypto asset custody services

On May 7, 2025, the OCC issued Interpretive Letter 1184, offering important clarification on the scope of crypto asset custody services that national banks and federal savings associations may provide. The letter noted banks may buy and sell crypto assets on behalf of customers, provided the banks act only at the direction of the customer. In addition, banks may outsource crypto asset custody functions, such as using subcustodians, as long as the underlying activity is permissible.

Fed and FDIC withdraw crypto asset and dollar token guidance

On April 24, 2025, the Fed and the FDIC withdrew prior guidance related to crypto asset and dollar token activities. It included requirements for banks to give advance notice before engaging in crypto activities and obtain prior nonobjection before engaging in dollar token activities. In addition, the agencies withdrew a joint statement addressing risks to banks arising from crypto asset market vulnerabilities.

Fed proposes to reduce volatility of capital requirements

On April 17, 2025, the Fed issued a request for comments on a proposal to reduce the volatility of capital requirements stemming from the board’s annual stress-test results. The proposal is part of broader changes announced in December aimed at improving the stress test’s resiliency. To address fluctuating results, it would:

Average results over two consecutive years
Delay the stress capital buffer requirement from October to January
Streamline data collection

FDIC modifies resolution planning guidance

On April 18, 2025, the FDIC modified its approach to resolution planning for large banks, focusing on operational information critical for rapid resolution scenarios. For full resolution submissions during the upcoming submission cycle, the FDIC has exempted insured depository institutions from certain content requirements, such as the requirements to use a bridge bank strategy and a hypothetical failure scenario in the plan.

CFPB announces regulatory relief for small loan providers

On April 11, 2025, the Consumer Financial Protection Bureau (CFPB) announced it will not prioritize enforcement or supervision of entities that miss upcoming registration deadlines under the regulation titled Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders (12 CFR part 1092). This includes deadlines on April 14, 2025, and July 14, 2025, for certain entities. Instead, the CFPB will focus on addressing more urgent consumer protection issues.

CFPB clarifies enforcement focus

On April 30, 2025, the CFPB announced it will not prioritize enforcement or supervision of the small-business lending rule under Regulation B (implementing Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) for entities not covered by the court stay in Texas Bankers Association v. CFPB.

CFPB reveals Buy Now, Pay Later enforcement stance

On May 6, 2025, the CFPB announced it will not prioritize enforcement of the Buy Now, Pay Later (BNPL) rule under Regulation Z (Truth in Lending) concerning the use of digital user accounts. In addition, the CFPB is contemplating rescinding BNPL.

From the Financial Accounting Standards Board (FASB)

FASB finalizes decisions on accounting for purchased financial assets

The FASB finalized its decisions on accounting for purchased financial assets (PFAs) at its meeting on April 30, 2025, narrowing the scope to loan receivables while excluding credit card receivables and held-to-maturity debt securities. The existing accounting for PFAs with credit deterioration remains unchanged, with a new approach addressing stakeholder concerns about the “Day 1 double count” by allowing the gross-up approach to be applied to PFAs. Loan receivables will be considered “seasoned” and in scope if acquired via business combination or purchased more than 90 days after origination, without the acquiring entity having any involvement in the origination.

The board directed staff to draft a final Accounting Standards Update (ASU), which will be effective for annual periods beginning after Dec. 15, 2026, allowing for early adoption.

For more information, see the Crowe article “FASB Moves Ahead With Purchased Financial Assets Standard.”

FASB proposes simplified accounting for certain debt exchanges

On April 30, 2025, the FASB issued a proposed ASU, “Debt – Modifications and Extinguishments (Subtopic 470-50) and Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Accounting for Debt Exchanges,” aimed at clarifying the accounting treatment for specific debt exchange transactions involving multiple creditors. The proposed guidance applies to transactions where a debtor contemporaneously exchanges cash with the same creditor, retires existing debt, and issues new debt involving multiple creditors.

Under the proposal, a debt exchange would be accounted for as the issuance of a new debt obligation and an extinguishment of the existing debt if all the following conditions are met:

The new debt obligation involves multiple creditors.
The existing debt is repaid in accordance with its contractual terms or repurchased at market terms.
The new debt is issued at market terms following the issuer’s customary marketing process.

If these criteria are satisfied, entities would not need to perform the current 10% cash flow test to determine whether the debt exchange constitutes a modification or extinguishment, thereby simplifying the accounting process.

The proposed amendments would be applied prospectively to exchanges of debt instruments that occur on or after the initial date of application. Early adoption would be permitted.

Comments are due May 30, 2025.

For more information, see the Crowe article “FASB Proposes Changes to Debt Exchange Accounting.”

From the Securities and Exchange Commission (SEC)

SEC swears in new chair

On April 21, 2025, Paul Atkins was sworn in as the 34th chair of the SEC. Atkins was confirmed by the U.S. Senate on April 9, 2025, following his nomination by President Donald Trump on Jan. 20, 2025.

SEC intensifies focus on crypto assets through task force activity and public statements

Throughout April 2025 and early May, the SEC continued its engagement on crypto-related issues through a series of Crypto Task Force roundtables and public remarks from Atkins and Commissioners Hester Peirce and Mark Uyeda. These sessions addressed the application of existing securities laws to crypto transactions, the potential for a more tailored regulatory framework, and the operational challenges of digital asset custody. Recordings of the roundtables held on April 11, April 25, and May 12, 2025, are available on the SEC’s website.

An upcoming roundtable titled “DeFi and the American Spirit” is scheduled for June 6, 2025.

SEC releases new key market data and analysis

On April 28, 2025, the SEC’s Division of Economic and Risk Analysis (DERA) released new data and analysis covering key market segments, including public issuers, exempt offerings, commercial mortgage-backed securities, asset-backed securities, money market funds, and security-based swap dealers.

DERA also published updated staff interpretations and FAQs to assist filers with interactive data disclosure obligations, particularly for EDGAR submissions using eXtensible Business Reporting Language (XBRL). The guidance addresses topics such as validation, presentation and rendering, taxonomy use, company-specific extensions, detail tagging, and element selection.

SEC announces executive compensation disclosure roundtable

On May 16, 2025, the SEC announced it will hold a public roundtable on June 26, 2025, to evaluate executive compensation disclosure requirements. Atkins issued a statement outlining key questions for staff and inviting public input before and after the event.

SEC extends compliance dates for investment company reporting

The SEC on April 16, 2025, announced a two-year extension of certain compliance deadlines related to amendments adopted on Aug. 28, 2024, requiring more frequent reporting on Form N-PORT. Under the extension, larger fund groups must now comply by Nov. 17, 2027, while smaller groups have until May 18, 2028. The amendments require monthly portfolio holdings data to be filed with the SEC. Notably, Form N-CEN reporting from the original release is unaffected by this extension and retains its original effective and compliance date of Nov. 17, 2025, for all funds.

Corp Fin updates C&DIs

On April 25, 2025, the Division of Corporation Finance (Corp Fin) issued updates and withdrew select Compliance and Disclosure Interpretations (C&DIs), providing clarification on Section 120 (Rule 10b5-1) and Section 220 (Rule 10b5-1) regarding the use of manipulative or deceptive devices and contrivances.

SEC maintains focus on Regulation A and capital formation efforts

At its meeting on May 6, 2025, marking the sixth anniversary of the Small Business Capital Formation Advisory Committee, Atkins emphasized the need to modernize Regulation A to incentivize use. He urged the committee to explore potential amendments that would improve capital access for a broader range of issuers, while upholding investor protection standards.

From the Public Company Accounting Oversight Board (PCAOB)

PCAOB shares results from conversations with audit committee chairs

On May 15, 2025, the PCAOB released a publication, “Spotlight: 2024 Conversations With Audit Committee Chairs,” summarizing insights from discussions with approximately 270 audit committee chairs at U.S. public companies. The goal was to gather perspectives on audit quality and share resources to enhance audit committee effectiveness. The report identifies and provides additional details on the top five areas of significant discussions between audit committees and their audit firms:

Factors affecting relationships with the audit firms such as communication, coordination, and technical expertise
Firm inspection reports
Economic environment affecting the audit
Auditing and accounting matters
The use of emerging technologies on the audit

The report also provides answers to audit committees’ frequently asked questions of the PCAOB.

PCAOB holds Investor Advisory Group meeting

The PCAOB Investor Advisory Group (IAG) held a virtual meeting on April 29, 2025. The IAG presented information on investor expectations of the audit, artificial intelligence opportunities and challenges, and the talent pipeline. The IAG also requested information on notable critical audit matters. A recording of the meeting can be found on the group’s meeting event site.

PCAOB releases downloadable datasets on audit firm inspection findings

On April 28, 2025, the PCAOB released new downloadable datasets that include inspection findings from audit firm reports dating back to 2018. The datasets, which are machine-readable, include both Part I.A and Part I.B findings and are available in several formats. The detailed inspection findings datasets cover deficiencies in audits and noncompliance with PCAOB standards, providing comprehensive descriptions and classifications related to the identified deficiencies.

The PCAOB also updated its existing firm-level dataset to offer greater detail on reviewed audits. This initiative advances PCAOB’s commitment to transparency and investor protection by enabling stakeholders to perform deeper analyses using machine-readable data.

From the Center for Audit Quality (CAQ)

CAQ addresses auditor’s role in climate-related information

In April 2025 the CAQ issued “The Role of the Auditor in Climate-Related Information,” to guide public company auditors through the evolving landscape of climate-related disclosures. As investor and regulatory focus intensifies on the reliability of environmental, social, and governance information, the publication emphasizes the critical role auditors play in the credibility of such data. It highlights the increasing demand for assurance over climate-related information and describes the types of climate-related information being disclosed and where it is disclosed.

The CAQ emphasizes that auditors can provide valuable assurance services, bolstering investor confidence in climate-related disclosures. By using their expertise in evaluating financial statements and internal controls, auditors are well-positioned to assess the accuracy and completeness of climate-related information. The publication also discusses the necessary skill sets for auditors to perform effective attestation engagements in this area, noting that many companies already seek third-party assurance to meet stakeholder expectations.

An audit committee might find this CAQ report valuable in understanding how auditors can enhance the reliability of climate-related disclosures. It can also help inform oversight of assurance engagements and guide discussions with management and auditors on the quality and scope of climate-related reporting.