FASB Alert: ASU 2025-08 brings major CECL reform for purchased loan accounting

On November 12, 2025, the Financial Accounting Standards Board (FASB) released ASU 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans, introducing significant changes to the Current Expected Credit Loss (CECL) standard. This update addresses persistent concerns about how purchased financial assets are accounted for and aims to improve consistency and transparency in acquisition reporting.

Key Changes

• Eliminates Day-1 Double Counting: Institutions no longer record an immediate credit-loss expense at acquisition for most purchased loans.
• Introduces Purchased Seasoned Loans (PSLs): Loans acquired at least 90 days after origination (and not originated by the acquirer) now qualify for PSL treatment.
• Expands Gross-Up Approach: All PSLs will use the gross-up method, aligning accounting with economic reality and reducing earnings volatility.
• Clarifies Interest Income Recognition: Institutions should accrete only the portion of discounts or premiums unrelated to credit risk.
• Provides Amortized Cost Measurement Election: For PSLs, entities may elect to measure expected credit losses using amortized cost rather than unpaid principal balance.

Effective Date

The new guidance applies to fiscal years beginning after December 15, 2026, with early adoption permitted. Implementation is prospective, so prior acquisitions will not need to be revisited. Institutions may have two different accounting treatments on their books if earlier acquisitions exist.

Next Steps for Institutions

Banks, credit unions, and other financial institutions should review acquisition strategies, update CECL models, and verify systems can accurately capture both loan origination and acquisition dates. In addition, institutions should structure operational processes to identify acquirer involvement for any loan where a PSL designation applies. These changes may also influence purchase-price allocations and post-acquisition earnings patterns.

We Can Help

Our team is ready to assist with impact assessments, CECL model updates, and implementation planning. Contact us today to discuss how ASU 2025-08 may impact your organization.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.