There’s a significant amendment to Topic 326. Explore the new standard’s implications and develop strategies to adjust to the changed rules.
The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2025-08 to improve the accounting for acquired financial assets, particularly loans. This update is a significant amendment to Topic 326, which includes the following key change:
Expansion of the gross-up approach
Previous model
Under prior Generally Accepted Accounting Principles (GAAP), acquired financial assets were classified as either purchased credit-deteriorated (PCD) or non-PCD. PCD assets used the gross-up approach, while non-PCD assets recognized an allowance for credit losses (ACL) through credit loss expense, often resulting in a perceived double-counting of expected credit losses, as credit adjustments were also included in the fair value of loans acquired.
New model
ASU 2025-08 expands the gross-up approach to include “purchased seasoned loans.” Purchased seasoned loans are a newly created category of acquired loans not meeting the definition of PCD. This change reduces complexity and improves comparability by minimizing the subjective distinction between PCD and non-PCD assets. Purchased seasoned loans are defined as loans (excluding credit cards) acquired:
- In a business combination accounted for using the acquisition method in accordance with Subtopic 805-20 (automatically deemed seasoned), or
- More than 90 days after origination, provided the acquirer was not involved in the origination. The transferee is more likely to be involved with the origination of a loan when the transfer occurs through the terms of an existing contractual relationship, financing arrangement, purchase commitment, or other agreement with the entity that originated and transferred the loan. The seasoning assessment is performed on an individual loan basis, not at the portfolio level.
Exclusions
Credit cards, debt securities, and trade receivables arising from transactions accounted for under Topic 606, are excluded from the purchased seasoned loan classification and the gross-up approach.
Effective date and transition options
- Effective for annual periods beginning after December 15, 2026, including interim periods within those annual periods.
- Early adoption is permitted in any interim or annual period where financial statements haven’t yet been issued. The ASU applies only to loans acquired on or after the initial application date and as a result, no retrospective restatement is required.
How CLA can help with the new accounting update
CLA’s financial services professionals can help you assess the implications of this new accounting standard and develop strategies to adjust to the new rules when they go into effect.