Table of Contents
Share with network
Related Insights
In this edition of the quarterly communication, we have provided information about financial reporting and accounting issues – some of which are currently being evaluated by regulatory agencies and not resolved at this time. We have also compiled a list of items for consideration in your financial reporting and disclosures for the third quarter and a summary of recently issued accounting pronouncements (see Appendices for summary of recently issued accounting pronouncements and the related effective dates).
Click here to download the PDF.
The following selected Accounting Standards Updates (ASUs) were issued by the Financial Accounting Standards Board (FASB) during the third quarter. A complete list of all ASUs issued or effective in 2026, together with selected standards becoming effective in upcoming periods, is included in Appendix A.
In September, the FASB issued ASU 2026-03, Investment Companies with Equity Securities Subject to Contractual Sale Restrictions, that improves how investment companies such as mutual funds measure the fair value of an equity security that is subject to a contractual sale restriction. The new standard addresses stakeholder concerns that current guidance can produce fair value measurements that do not reflect how market participants would value equity securities with contractual sale restrictions.
Under current generally accepted accounting principles (U.S. GAAP), a contractual restriction on the sale of an equity security is not considered when measuring the fair value of that security. As a result, an entity holding a restricted equity security and an entity holding an unrestricted equity security issued by the same investee generally would measure fair value using the market price of the unrestricted security. Stakeholders told the FASB that applying current guidance can overstate the net asset value (NAV) reported by investment companies, distort performance reporting and management fees, and create different outcomes for purchasing, redeeming, and remaining shareholders. For investment companies within the scope of Accounting Standards Codification (ASC) 946, Financial Services—Investment Companies, the amendments in the ASU provide an exception to ASC 820, Fair Value Measurement, requiring that a contractual restriction on the sale of an equity security be considered in measuring the fair value of the equity security. The amendments also require those investment companies to disclose the amount of the discount attributable to the contractual sale restriction.
Effective Dates
The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted. An investment company within the scope of ASC 946 that early adopts the amendments is permitted to do so on any date on or after the issuance date of this ASU. An investment company within the scope of ASC 946 is required to apply the amendments prospectively to all equity securities with any adjustments from the adoption of the amendments recognized in earnings.
The following updates include late second quarter developments that were not included in our prior communication.
On June 12, 2026, FinCEN released updated guidance clarifying how financial institutions may share information under Section 314(b) of the USA PATRIOT Act. The guidance supports collaboration to detect fraud, money laundering, terrorist financing, sanctions evasion, and other illicit activity, while replacing several previous interpretations and administrative rulings. The update highlights FinCEN's broader effort to encourage information sharing as a key tool for identifying financial crime and strengthening fraud prevention across the banking sector.
On June 17, 2026, the FASB issued a proposed ASU aimed at refining hedge accounting requirements. The proposal would expand permitted interest rate hedging strategies for held-to-maturity securities, broaden the use of SOFR-based benchmarks, and allow certain cross-currency swaps to qualify as net investment hedges. The changes are designed to provide financial institutions with greater flexibility in managing interest rate and currency risks while preserving the objectives of hedge accounting.
On June 25, 2026, the FDIC approved three proposed rulemakings focused on deposit insurance assessments, resolution planning requirements, and the disclosure of confidential supervisory information. The proposals would adjust assessment thresholds and rate schedules, increase the asset threshold for resolution plan filings from $50 billion to $100 billion, and update rules governing supervisory information. Together, the proposals would update longstanding regulatory requirements, improve supervisory efficiency, and maintain safety and soundness objectives.
On June 25, 2026, the OCC issued the “Lending and Loan Portfolio Risk Management” booklet of the Comptroller’s Handbook, while withdrawing certain prior guidance materials. The publication outlines examiner expectations for managing lending activities, credit risk, underwriting practices, ongoing loan monitoring, and portfolio oversight. Although not a formal rule, the handbook serves as an important supervisory resource and may influence examination focus areas, helping institutions evaluate and strengthen risk management practices across the lending life cycle.
On July 7, 2026, the Federal Reserve requested comment on proposed revisions to banks' anti-money laundering (AML) program requirements. The proposal would align the Fed's framework with pending AML and countering the financing of terrorism (CFT) rules from other federal agencies, emphasizing risk-based resource allocation and incorporation of FinCEN's AML priorities into institutional risk assessments. If adopted, the changes would further connect AML compliance programs to an organization's unique risk profile while maintaining expectations for effective program implementation.
On July 29, 2026, the Federal Open Market Committee (FOMC) voted to maintain the federal funds target range at 3.5% to 3.75%. The committee pointed to continued economic growth, resilient labor market conditions, low unemployment, and inflation that remains above its long-term target. While rates were left unchanged, the announcement provides valuable insight into the Fed’s outlook and policy priorities. Financial institutions can use this guidance when evaluating funding strategies, loan pricing, deposit management, and other balance sheet decisions.
At its July 29, 2026, board meeting, the FASB added a project to its technical agenda focused on targeted improvements to goodwill impairment testing. The project will examine both the level at which goodwill is evaluated for impairment and how frequently testing should occur. Although no specific accounting changes have been proposed, the initiative signals continued attention to an area that affects organizations with acquisition-related goodwill.
On July 30, 2026, the OCC issued a revised compliance guide for the Community Bank Leverage Ratio (CBLR) framework, a simplified capital option designed for qualifying community banks. According to the OCC, approximately 95% of community banks are eligible to use the framework, which the agency estimates could free up roughly $64 billion in capital to support lending and other banking activities.
The updated guide refreshes the OCC's compliance materials related to the CBLR framework and provides additional explanatory resources for eligible institutions. The framework allows qualifying banks to satisfy regulatory capital requirements through a simple leverage ratio rather than the traditional risk-based capital approach. The OCC stated that the revisions are intended to support consistent application of the framework while reducing regulatory burden for community banks.
On July 31, 2026, the FDIC and OCC proposed targeted revisions to their Community Reinvestment Act (CRA) regulations. The proposal seeks to better align the rules with statutory requirements, improve the treatment of community development activities, reduce compliance burden, and provide greater clarity around CRA credit eligibility. While preserving the framework’s core structure, the changes could affect how banks document qualifying lending and community development efforts, particularly among community and regional institutions.
On July 31, 2026, the Federal Reserve proposed updates to two long-standing regulatory frameworks. One proposal would provide additional flexibility for certain mutual banking organizations to raise capital and streamline administrative requirements. The other would modernize Regulation O by updating lending thresholds, adjusting limits over time, and simplifying compliance requirements related to insider lending. Together, the proposals reflect a broader effort to make established regulatory frameworks more efficient while preserving key governance protections.
On Aug. 5, 2026, the agency announced the creation of a new Financial Reporting and Accounting Unit within its Division of Enforcement. The specialized unit will focus on financial reporting fraud as well as misconduct involving accountants and auditors. Timothy Zimmerman, who joined the Enforcement Division in May, was selected to lead the new unit.
According to the SEC, the unit will be staffed by attorneys and accountants with specialized expertise in accounting, auditing, and securities regulation. The group will work with other SEC divisions and offices as part of the agency's enforcement activities and broader investor protection efforts. The unit reflects the SEC’s continued focus on financial reporting, accounting, and auditor misconduct, particularly in areas involving significant accounting judgments and estimates.
On Aug. 14, 2026, the OCC released its annual update to the Bank Accounting Advisory Series (BAAS), incorporating new guidance, revisions tied to recently issued accounting standards, and updates addressing emerging issues. New topics include nonaccrual loans, grants received by banks, and acquired loans, while several existing entries were clarified or reorganized. Although the BAAS does not carry the force of regulation, it reflects the OCC’s interpretations of accounting and supervisory guidance and remains a widely referenced resource for financial institutions.
On Aug. 18, 2026, the SEC proposed Regulation Crypto Assets, a new framework designed to clarify how certain investment contracts involving crypto assets could be offered under federal securities laws. The proposal would establish two exemptions from Securities Act registration. A startup exemption would permit offerings of up to $5 million during a four-year period, while a broader fundraising exemption would permit offerings of up to $75 million during each 12-month period. Both would require specified principles-based disclosures.
The expanded fundraising exemption would require issuers to provide financial statements, ongoing reporting, and audited financial statements once specified fundraising thresholds are met.
On Aug 25, 2026, the FDIC released its most recent Quarterly Banking Profile covering the second quarter of 2026. The Quarterly Banking Profile provides the earliest comprehensive summary of financial results for all FDIC-insured institutions. The report includes data from 4,238 commercial banks. Highlights are included below:
On Aug. 27, 2026, the FDIC and OCC issued a final rule that creates a common definition of an “unsafe or unsound practice” and establishes consistent standards for issuing matters requiring attention (MRAs) and communicating examination findings. Effective Nov. 2, 2026, the framework is intended to focus supervisory action on material financial risks and significant legal violations rather than documentation, process, or other nonfinancial matters. Banks may see changes in how examination issues are identified, prioritized, and remediated, with regulatory scrutiny increasingly tied to the significance of the underlying risk.
On Aug. 27, 2026, the OCC introduced updates to its enforcement and supervisory framework intended to improve consistency, transparency, and proportionality. The agency released its MRA policy manual and proposed distinguishing substantive legal violations from technical violations, with some technical matters potentially handled outside the MRA process. The changes are expected to provide banks with greater clarity around examination findings and could affect how compliance issues are classified, prioritized, monitored, and resolved.
The FDIC approved an interim final rule on Aug. 27, 2026, revising how reciprocal deposits are treated under brokered deposit regulations. The rule increases the amount eligible institutions can exclude from brokered deposit classification through a tiered calculation tied to liabilities, with a cap of $30 billion. It also broadens eligibility for agent institution status and clarifies application requirements. Banks participating in reciprocal deposit networks should assess the effect on funding strategies, deposit classifications, regulatory reporting, and qualification status.
On Sept. 8, 2026, Federal Reserve Vice Chair for Supervision Michelle Bowman published an opinion article, “How To Make Life Hard for Small Banks,” in The Wall Street Journal. She urged the FASB to provide community banks relief from the CECL standard, arguing that implementation costs often outweigh the benefits for smaller institutions. She pointed to expenses related to modeling, data, technology, consultants, and staffing, while also warning that CECL may increase reserve volatility during economic downturns. Her comments coincide with the FASB’s ongoing post-implementation review of Topic 326, including a survey seeking input from financial statement preparers on the costs and effectiveness of the standard.
On Sept. 10, 2026, the SEC’s Investor Advisory Committee held a public meeting that included a panel devoted specifically to AI technologies and the public-markets information ecosystem. The discussion addressed how companies are beginning to use AI to collect and reconcile financial data, draft and revise disclosures, compare disclosures with peers, identify inconsistencies, prepare structured data, and manage SEC filing workflows.
The committee also examined the importance of machine-readable information—including structured data and taxonomies—as AI increasingly becomes part of both financial statement preparation and investment analysis. In the Aug. 6, 2026 episode of the SEC’s Material Matters podcast, SEC Chairman Paul Atkins and Chief Accountant Kurt Hohl emphasized that regardless of the technology companies use, management remains ultimately responsible for its financial statements and must understand the associated risks.
On Sept. 16, 2026, the SEC proposed rescinding Rule 14a-8, which governs shareholder proposals in company proxy materials, shifting greater authority to state corporate law and individual governance structures. The agency also proposed updates to Rule 14a-4(c) that would expand discretionary proxy voting authority while allowing shareholders to opt out. In a separate proposal, the SEC outlined several proxy process modernization measures, including reducing document delivery timelines and eliminating certain notice requirements. Comments on both proposals are due Nov. 20, 2026.
On Sept. 22, 2026, members of Congress introduced the Small Business Audit Correction Act, legislation that would modify the audit requirements applicable to certain privately held broker-dealers.
Under current requirements, broker-dealers subject to the legislation generally must comply with PCAOB-related audit requirements. The proposed legislation would exempt qualifying privately held, non-carrying broker-dealers in good standing from the PCAOB audit requirement for their annual reporting obligation. Instead, qualifying firms could satisfy the annual audit requirement under Exchange Act Rule 17a-5 through an audit conducted in accordance with generally accepted auditing standards.
Eligibility would be limited. Among other criteria, the bill defines a qualifying non-carrying broker or dealer using a threshold of no more than 150 registered persons as of the end of its most recently completed fiscal year. Certain firms subject to disciplinary actions or other specified conditions would not qualify.
As companies spend more on developing AI-enabled applications, finance departments are confronting a deceptively simple question: Should those costs be expensed or capitalized? Immediate expensing reduces current-period income, while capitalization creates an asset that generally affects earnings through subsequent amortization. AI projects can make the analysis more difficult because development may be iterative, and companies may incur costs at different stages of a project.
Accounting departments should be able to demonstrate when a project reached the development stage, which expenditures qualify for capitalization, and how costs were allocated. For controllers, AI is increasingly an asset recognition, expense classification, amortization, impairment, and financial statement presentation issue requiring accounting involvement early in the development process.
The enormous capital investment surrounding AI is creating financial reporting consequences beyond accounting for AI software itself. Arrangements involving third-party logistics companies may require a business to recognize inventory and a financing obligation before taking physical possession. While the arrangement may initially resemble an ordinary purchase commitment, the accounting can be different if the company effectively controls the inventory and retains substantially all economic risks.
Accountants should consider who determines sourcing and storage, whether the third party can sell the goods elsewhere, who bears price and obsolescence risk, and whether repurchase commitments or guarantees exist. When the economics indicate that the third party is effectively financing the inventory purchase, ASC 470-40 may require recognition of both the inventory and a financing obligation when the third party acquires the goods.
Since supply-chain decisions can unexpectedly become accounting decisions, controllers should be involved when purchasing and operations teams negotiate unusual inventory arrangements, particularly when shortages encourage companies to use intermediaries to secure supplies.
Tariffs continued to create accounting challenges during Q3 2026, but the issue took an important turn: companies increasingly had to determine how to account for tariff refunds. By August, more than $100 billion of International Economic Powers Act (IEEPA) tariff refunds had reportedly been paid or were in the queue for payment, according to a court filing. A second phase of the refund process opened June 29 for entries involving additional complexities, while uncertainty remained regarding certain older entries.
For accountants, receiving or expecting a refund does not automatically determine when income should be recognized. Companies must evaluate the available evidence and apply their accounting policies consistently in determining whether recognition is appropriate. Differences in the status of individual tariff claims may also mean that refunds cannot all be accounted for identically.
Tariffs previously included in inventory costs may complicate the determination of where a subsequent refund should be recorded. Refunds may also influence cost of sales, margins, receivables, cash flows, and quarter-to-quarter comparability. Companies should maintain detailed documentation linking tariff payments and refund claims to individual entries and accounting conclusions.
The following selected FASB exposure drafts and projects are outstanding as of Sept. 30, 2026.
In September 2026, the FASB issued a proposed ASU to improve accounting guidance for residential mortgage servicing rights. The proposed ASU is based on a recommendation of the Emerging Issues Task Force (EITF).
A residential mortgage servicing right represents the contractual right to service an underlying residential mortgage loan. Recapture refers to a mortgage servicer’s ability to solicit a borrower to refinance an existing mortgage loan and retain the servicing rights on the new loan. Stakeholders have noted that current guidance does not specifically state whether the value attributable to recapture should be included when measuring a residential mortgage servicing right, which has resulted in diversity in practice and reduced comparability.
To address stakeholders’ concerns, the amendments in this proposed ASU would require an entity to include the effects of recapture when measuring a residential mortgage servicing right by specifying that an entity must value all rights and obligations associated with a residential mortgage servicing contract, including recapture, in accordance with ASC 820, Fair Value Measurement.
The FASB proposed clarifying when a debt exchange should be treated as issuing new debt and extinguishing existing debt. Under current US GAAP, entities must determine whether a transaction is (1) a modification of the existing debt obligation or (2) the issuance of a new debt obligation and an extinguishment of the existing debt obligation. Stakeholders note that treating some debt exchanges as modifications can misrepresent their economics and requires complex, costly cash flow analyses.
To address these concerns, when certain requirements are met, an exchange of debt instruments should be accounted for as the issuance of a new debt obligation and an extinguishment of the existing debt obligation without requiring a quantitative test. If those requirements are not met, an entity would be required to evaluate whether the debt instruments have substantially different terms based on the guidance in Subtopic 470-50, Debt—Modifications and Extinguishments, to determine how the transactions should be accounted for. In March 2026, the FASB paused further deliberations until it evaluates feedback from the Private Company Council.
On June 10, 2026, the FASB issued proposed ASU, Compensation—Retirement Benefits—Defined Benefit Plans—Pension (Subtopic 715-30): Discount Rate Used to Measure the Benefit Obligation for Certain Market-Return Cash Balance Plans.
The proposal responds to concerns raised by the EITF in September 2025 regarding the application of ASC 715, Compensation—Retirement Benefits, to market-return cash balance plans, which are a type of cash balance plan with a variable interest crediting rate based on investable market returns. The EITF noted that there are different interpretations of the measurement guidance in Subtopic 715-30, Compensation—Retirement Benefits—Defined Benefit Plans—Pension, related to the discount rates that could be used to measure the projected benefit obligation of market-return cash balance plans.
FASB proposed guidance issued in Aug. 2026 aiming to clarify how certain digital assets, including stablecoins, fit within the existing definition of cash equivalents and reduce diversity in practice. The proposal would add illustrative examples without changing current U.S. GAAP and require enhanced disclosure of significant cash-equivalent components to improve transparency and comparability. Comments are due November 19, 2026.
During its May 27, 2026, meeting, the FASB added a project to its technical agenda on subjective acceleration clauses and made the following decisions:
In September 2026, the FASB issued a proposed ASU intended to make targeted improvements across a variety of topics in the Accounting Standards Codification. The proposed amendments would apply to reporting entities within the scope of the affected guidance. Comments are due November 19, 2026.
The Emerging Issues Task Force (EITF) did not meet during the third quarter. The next EITF meeting is scheduled for December 15, 2026.
The Private Company Council (PCC) met on Sept. 28 and 29, 2026. A summary of topics discussed by PCC and FASB members at the meeting will be included in our next quarterly update.
The linked table contains significant implementation dates and deadlines for standards issued. View Appendix A.
The illustrative disclosures linked are presented in plain English. Please review each disclosure for its applicability to your organization and the need for disclosure in your organization’s financial statements. View Appendix B.
All pronouncements issued during the period should be evaluated to determine whether they are applicable to your Company. Through Sept. 30, 2026, the FASB has issued the linked Accounting Standards Updates during the year. View Appendix C.
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.
