FASB Moves Ahead With Purchased Financial Assets Standard

In under a minute

• At its April 30, 2025, meeting, the Financial Accounting Standards Board (FASB) concluded its deliberations and finalized its decisions on how to account for purchased financial assets (PFAs).”
• The FASB narrowed the scope of the PFA amendments to loan receivables, excluding credit card receivables. Held-to-maturity (HTM) debt securities will not be in scope.
• The existing accounting for purchased financial assets with credit deterioration (PCD) will remain intact; while the PCD and PFA models share similarities, some key differences exist.
• The board’s approach was aimed at addressing stakeholder feedback on the “Day 1 double count” by allowing the gross-up approach to be applied to PFAs but otherwise aligning the accounting for PFAs with originated loans.
• Loan receivables, excluding credit cards, will be considered “seasoned” and in scope of the PFA model if acquired via business combination or purchased more than 90 days after origination, without the acquiring entity having any involvement in the origination.
• The final Accounting Standards Update (ASU) will be applied prospectively and will be effective for annual periods beginning after Dec. 15, 2026, and interim reporting periods within those annual periods. Early adoption will be permitted for any annual or interim periods for which financial statements have not yet been issued.
• Under the new ASU, there will be no change to the disclosure requirements.

Breaking it down

On April 30, 2025, the FASB directed staff to draft a final ASU for “Financial Instruments – Credit Losses (Topic 326): Purchased Financial Assets.” The ASU will have a narrower scope than what was originally proposed, and entities will be able to adopt early.

Revision of project’s objective

The board revised the project objective to improve the accounting for the acquisition of PFAs, other than PCD assets, through narrow amendments. Under this revised project objective, the current accounting for PCD assets will be retained.

Scope decisions

The board narrowed the scope of the project to loan receivables, excluding credit card receivables, which have different characteristics that complicate their inclusion. Loan receivables with revolving privileges other than credit cards will be in scope. HTM debt securities will be scoped out of the amendments.

Seasoning criteria

The FASB affirmed the proposed seasoning criteria for establishing which loan receivables will be PFAs. A loan receivable is considered “seasoned” when either of the following conditions is met:

• The loan is acquired through a business combination accounted for under Topic 805.
• The loan is purchased more than 90 days after its origination date, and the purchasing entity did not have involvement with the origination of the asset.

Crowe observation: The seasoning determination is made at an individual loan level. Any loans purchased in an asset acquisition, even if part of a purchased pool, that do not meet one of the seasoning criteria will not be able to apply the PFA model.

Crowe observation: Seasoned loan receivables will follow the PFA accounting model, which includes a gross-up of the loan’s value to reflect expected credit losses. Loans that are not seasoned will follow the current expected credit losses model applicable to originated loans.

Recognition and measurement decisions

• Initial amortized cost basis. A loan’s initial amortized cost basis will be calculated as the purchase price plus the initial allowance for credit losses (ACL).
• Interest income recognition. Entities should apply the interest method to recognize the noncredit discount or premium.
• Accrual guidance. Entities should apply existing nonaccrual guidance to PFAs. The board rejected a proposal requiring entities to demonstrate a reasonable expectation of collection to recognize interest income on seasoned assets.
• Recovery cap guidance. Entities should not apply paragraph 326-20-30-13A in estimating recoveries for credit loss measurement; the ACL for seasoned assets will not be subject to a recovery cap.

Additionally, after initial measurement, entities may elect to aggregate seasoned loan receivables with existing financial assets sharing similar risk characteristics for purposes of estimating expected credit losses when a nondiscounted cash flows method is used. This election must be made at the first financial statement date following the acquisition date.

Disclosures, transition, and effective date

• Disclosures. The ASU will not result in changes or additions to the disclosure requirements.
• Transition. The amendments will be applied prospectively for annual periods beginning after Dec. 15, 2026, including interim periods within those annual periods.
• Early adoption. Entities may early adopt the amendments for any annual or interim reporting periods for which the financial statements are not yet issued. Entities that adopt in an interim period may apply the guidance from either the beginning of that interim period or the start of the related annual reporting period.

Crowe observation: Assuming the ASU is finalized and adopted during 2025, calendar year-end companies would be able to adopt the standard in 2025 and apply it to any transactions completed during the year.

Next steps

The board has directed FASB staff to proceed with drafting a final ASU. This marks a significant milestone in the FASB’s efforts to refine and clarify the acquisition accounting for purchased financial assets, providing preparers and users with more consistent and decision-useful information.

FASB materials reprinted with permission. Copyright 2025 by Financial Accounting Foundation, Norwalk, Connecticut. Copyright 1974-1980 by American Institute of Certified Public Accountants.