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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 second quarter and a summary of recently issued accounting pronouncements (see Appendices for summary of recently issued accounting pronouncements and the related effective dates).
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The following selected Accounting Standards Updates (ASUs) were issued by the Financial Accounting Standards Board (FASB) during the second quarter. A complete list of all ASUs issued or effective in 2026 is included in Appendix A.
In April, the FASB issued ASU 2026-01, Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock, providing authoritative guidance on how an issuer should initially measure paid-in-kind (PIK) dividends on equity-classified preferred stock. The ASU is based on a recommendation of the Emerging Issues Task Force (EITF).
Stakeholders noted that current generally accepted accounting principles (GAAP) does not address how an issuer should initially measure PIK dividends on equity-classified preferred stock, leading to inconsistent practice and impacts on balance sheet presentation and earnings per share. The ASU requires that PIK dividends to be initially measured on the PIK dividend rate stated in the preferred stock agreement.
Effective Dates
The amendments are effective for all entities for annual reporting periods beginning after December 15, 2026 (including interim periods). Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. An entity adopting the amendments in an interim reporting period should apply them at the beginning of the annual reporting period that includes that interim reporting period. An entity may apply the amendments either (1) on a prospective basis or (2) on a modified retrospective basis for equity-classified preferred stock instruments outstanding as of the initial application date.
One of the most significant financial reporting developments of the second quarter of 2026 came on May 19, when the Securities and Exchange Commission (SEC) proposed a major overhaul of the public-company reporting framework. The proposal would simplify filer classifications by reducing the current categories to two primary groups: Large Accelerated Filers (LAFs) and Nonaccelerated Filers (NAFs). It would also increase the public float threshold for LAF status to $2 billion, potentially reducing reporting burdens for many smaller public companies.
For accounting and finance departments, the proposal could have far-reaching implications. Companies that move into the nonaccelerated filer category may face reduced compliance costs, primarily because they would no longer be subject to the auditor attestation requirement under Section 404(b)of the Sarbanes-Oxley Act. Management would still be responsible for assessing and reporting on the effectiveness of internal controls over financial reporting (ICFR) under Section 404(a), but organizations could see lower audit fees and fewer compliance-related burdens. Audit committees and CFOs should begin evaluating how potential changes could affect financial statement preparation, filing timelines, and external audit costs.
Supporters argue that the proposal would modernize disclosure requirements and encourage more companies to access public capital markets. Critics, however, caution that reducing reporting obligations could limit the amount of information available to investors. Congressional oversight committees are expected to closely monitor the proposal and its impact on market transparency.
Although the rule remains in the proposal stage, institutions should pay attention to the comment process and assess how changes in filer status could affect their organizations. If adopted, the proposal would represent one of the most consequential revisions to SEC reporting requirements in years and could significantly alter financial reporting practices across the public-company landscape.
In another major development in the second quarter, the SEC proposed allowing eligible companies to replace quarterly Form 10-Q filings with a new semiannual reporting framework. Under the proposal, companies could have the option to file a Form 10-S once annually while continuing to provide quarterly financial updates through earnings releases furnished on Form 8-K.
The proposal immediately drew attention from finance executives, auditors, and investors because quarterly reporting has long been central to U.S. securities regulation. Proponents argue that fewer quarterly filings could lower compliance costs and encourage a focus on long-term value creation over short-term earnings.
From a financial reporting perspective, the proposal could substantially alter reporting calendars, disclosure controls, and financial close processes. Companies would need to evaluate whether internal systems can support a hybrid reporting model that combines semiannual SEC filings with quarterly earnings disclosures. Audit committees would also need to reconsider oversight practices and investor communication strategies.
Congressional observers have expressed interest in how the proposal may affect market transparency and investor protections, with public hearings and comment letters expected to focus on whether less frequent SEC reporting could increase information asymmetry between companies and investors. As debate continues, institutions should assess operational impacts and prepare for possible changes to reporting requirements if the rule advances.
During the second quarter of 2026, SEC staff continued emphasizing the importance of transparent and compliant non-GAAP financial reporting. Recent guidance, comment letter trends, and enforcement discussions indicate that regulators remain concerned about adjustments that may obscure underlying operating performance or present overly favorable results.
Non-GAAP measures such as adjusted earnings per share, pre-provision net revenue, efficiency ratio, tangible book value per common share remain common in earnings releases and investor presentations for financial institutions. SEC rules require companies to present the most directly comparable GAAP measure and provide a reconciliation explaining differences between GAAP and non-GAAP results.
Accounting departments should pay particular attention to recurring expense adjustments, changes in metric definitions, and disclosure prominence. SEC reviewers continue to question companies that exclude normal operating costs or present non-GAAP measures more prominently than GAAP results. Enforcement actions in recent years have demonstrated the financial and reputational risks associated with misleading presentations.
Congressional interest in disclosure quality has also remained strong, with lawmakers examining whether investors receive sufficiently transparent information from public companies. Given the SEC’s ongoing focus, audit committees should maintain active oversight of management’s non-GAAP reporting policies and financial disclosure controls. Companies entering the second half of 2026 should review earnings release practices and ensure documentation supporting all non-GAAP adjustments is thorough and defensible.
Artificial intelligence became a major topic in accounting and financial reporting discussions during the second quarter of 2026 as SEC officials outlined concerns about how companies are using AI within financial reporting processes. At the SEC and Financial Reporting Conference in June, staff from the Office of the Chief Accountant indicated that while the agency is not planning immediate prescriptive regulations, it is considering issuing formal reminders regarding appropriate governance and controls surrounding AI use in financial reporting.
The SEC's concerns center on several areas that directly affect accounting departments. These include the reliability of data used to train AI models, the use of third-party vendors whose systems influence financial reporting, and the adequacy of management's risk assessment processes. SEC officials noted that companies must understand how AI-generated outputs are developed and whether sufficient controls exist to validate those outputs before they affect reported financial results.
For finance executives, the message is clear: existing ICFR frameworks remain applicable even when AI tools are involved. Companies using AI for account reconciliations, forecasting, revenue recognition analyses, impairment testing, or disclosure preparation should evaluate whether current controls adequately address risks such as model drift, bias, data quality issues, and lack of explainability.
Congressional interest in AI governance has also continued to grow, increasing the likelihood of future hearings and regulatory scrutiny. Audit committees should ensure management has established policies governing AI use, vendor oversight, documentation, and ongoing monitoring. As AI adoption accelerates across finance functions, regulators appear focused less on restricting innovation and more on ensuring that companies maintain reliable accounting controls and transparent financial reporting practices.
On May 4, 2026, the SEC’s Division of Corporation Finance (CorpFin) issued two new Compliance and Disclosure Interpretations (C&DIs) that provided guidance under the Securities Act. The updates included a new interpretation under Section 3(a)(2) of the Securities Act and a new interpretation related to Form S-8, which is commonly used to register securities issued under employee benefit plans. The guidance addressed issues involving securities offered through certain bank-sponsored retirement arrangements, including pooled employer plans (PEPs), and clarified the circumstances under which interests in those plans may qualify for the Securities Act’s bank exemption and how Form S-8 may be used in connection with employee benefit plan offerings. Overall, the May 2026 C&DIs provided additional clarity for banks, public companies, and plan sponsors regarding the securities law treatment of employee retirement plan interests and related registration requirements.
In May 2026, the SEC proposed rescinding in its entirety the Climate-Related Disclosure Rules adopted in March 2024 but never became effective due to ongoing litigation and a regulatory stay. The SEC stated that the rules—which would have required public companies to disclose climate-related risks, greenhouse gas emissions, climate governance, and certain financial statement impacts—were overly burdensome, imposed substantial compliance costs, and exceeded the agency’s statutory authority. The proposal reflects the SEC’s return to a more traditional, materiality-based disclosure framework, under which companies disclose information that is material to investors rather than complying with a climate-specific reporting regime. The proposed rescission would eliminate all climate-related disclosure requirements adopted in 2024 and leave issuers subject to existing SEC disclosure requirements, while opening a 60-day public comment period before any final action is taken. Comments are due Aug. 3, 2026.
On June 2, 2026, the SEC published a Draft Strategic Plan for fiscal years 2026-2030 outlining what Chairman Paul Atkins described as a renewed focus on the agency’s core statutory mission of protecting investors, maintaining fair and efficient markets, and facilitating capital formation. The draft plan is built around three strategic goals: (1) modernizing the SEC’s regulatory framework to promote innovation, capital formation, and investor protection, including developing a clearer regulatory approach for digital assets and distributed ledger technology; (2) increasing stakeholder engagement, facilitating compliance, and refocusing enforcement on clear violations of established law such as fraud and market manipulation rather than expanding regulatory obligations through enforcement actions; and (3) improving operational efficiency through organizational reforms, modernization of technology platforms such as EDGAR, enhanced performance management, and responsible use of emerging technologies including artificial intelligence. The plan also emphasizes simplifying disclosure requirements, expanding capital-raising opportunities, conducting retrospective reviews of existing regulations, and strengthening the SEC’s technological infrastructure to better support market oversight and regulatory effectiveness.
In March 2026, the FDIC, Federal Reserve, and OCC proposed updates to bank capital framework, designed to simplify capital requirements, improve risk sensitivity, and complete implementation of the final Basel III reforms. For regional and community banks, the proposal would revise the standardized capital framework by recalibrating risk weights for certain lending activities and reducing capital disincentives related to mortgage servicing and mortgage origination. The proposal would also require certain larger banks to recognize unrealized gains and losses on some securities in regulatory capital over a transition period. In addition, the Federal Reserve proposed changes to the Global Systemically Important Bank (GSIB) surcharge methodology to better measure systemic risk and align surcharge requirements with the risks posed by the largest banking organizations. Overall, the agencies sought to maintain the strength of the banking system while tailoring capital requirements to different types of institutions.
On April 17, 2026, the FDIC, Federal Reserve, and OCC issued revised model risk guidance, replacing the agencies’ prior guidance issued in 2011 and 2021. The update adopts a more tailored, risk-based approach based on an institution’s size, complexity, and model risk profile, while narrowing the definition of “model” and excluding simple calculations and rule-based processes. The guidance highlights sound practices for model development and use, validation and monitoring, governance and controls, and oversight of vendor and third-party models. It is expected to be most relevant for banking organizations with more than $30 billion in assets, although smaller institutions with significant model risk may also find it applicable. Importantly, the agencies clarified that the guidance does not establish enforceable standards and that noncompliance alone will not result in supervisory criticism. The guidance also excludes generative AI and agentic AI models from its scope, with the agencies indicating they intend to further evaluate AI-related model risk management separately.
On April 23, 2026, the FDIC, Federal Reserve, and OCC finalized revisions to the Community Bank Leverage Ratio (CBLR) framework, lowering the leverage ratio requirement from 9% to 8% and extending the compliance grace period. The changes are intended to provide greater flexibility, encourage use of the simplified capital framework, and reduce regulatory burden while maintaining safety and soundness. The rule became effective on July 1, 2026.
On April 24, 2026, the OCC issued interim actions confirming that national banks and federal savings associations may charge noninterest fees, including credit and debit card interchange fees, even when pricing is established with third parties. The actions were prompted by the Illinois Interchange Fee Prohibition Act (IFPA), a state law scheduled to take effect on July 1, 2026, that would restrict the collection of interchange fees on portions of card transactions related to taxes and gratuities. The OCC concluded that the IFPA would create operational complexity and conflict with federally granted banking powers and therefore issued an order confirming that federal law preempts the Illinois law for OCC-regulated institutions. The OCC stated that these actions preserve nationally consistent standards for payment card activities and reaffirm the federal government's authority to regulate the powers of national banks and federal savings associations. The actions took effect June 30, 2026.
In its May 2026 Financial Stability Report, the Federal Reserve noted that the U.S. financial system remains generally resilient, but several vulnerabilities continue to warrant attention. The report identified elevated asset valuations, financial-sector leverage, and funding risks as the primary areas of concern. Equity valuations remained high relative to historical norms, corporate bond spreads stayed compressed, and certain real estate sectors continued to face refinancing pressures despite signs of stabilization. The report also highlighted rapid growth in private credit markets and elevated leverage among some hedge funds, particularly those engaged in Treasury and basis-trading strategies.
The Fed reported that business and household debt levels remain moderate overall, while banks continue to be well capitalized with strong liquidity positions. However, funding risks remain present in areas such as prime money market funds, short-term funding markets, and private credit vehicles that rely on less stable funding structures. Looking ahead, survey respondents identified geopolitical tensions as the most significant near-term risk to financial stability, followed by concerns related to inflation, an oil-price shock, risks associated with AI, and potential vulnerabilities within private credit markets. The Fed noted that adverse shocks affecting these areas could interact with existing market vulnerabilities and amplify financial stress.
The OCC’s Spring 2026 Semiannual Risk Perspective reported that the federal banking system remains in a generally sound condition, supported by improved earnings, strong capital levels, healthy liquidity positions, and manageable credit risk. However, the OCC emphasized several areas requiring ongoing attention, including credit, market, operational, and compliance risks. In particular, the report identified refinancing risk in certain commercial real estate segments and evolving risks within private credit markets as areas that warrant continued monitoring. While overall credit quality remains stable, modest increases in past-due loans have emerged in some consumer portfolios.
The OCC also highlighted growing operational and compliance challenges. Cybersecurity threats, fraud, and scams continue to increase in sophistication, driven by both cybercriminal organizations and foreign state-sponsored actors. The report notes that advances in AI may provide benefits for cybersecurity and risk management but also require strong governance and risk oversight. In addition, the OCC warned that geopolitical tensions could heighten sanctions and anti-money laundering (AML) compliance risks, placing additional pressure on bank compliance programs. The agency emphasized the importance of maintaining strong risk management practices while continuing efforts to tailor supervision and reduce regulatory burden so banks can better support economic growth.
The FDIC’s 2026 Risk Review found that the banking industry remained generally stable in 2025, supported by strong earnings, loan growth, and improving net interest margins. Deposit growth remained steady, liquidity conditions were stable, and unrealized securities losses decreased from prior-year levels, although they remained elevated compared to historical norms. The report noted that overall credit risks were generally contained and that the banking sector continued to demonstrate resilience despite a slowing economic environment and evolving market conditions.
The FDIC highlighted several areas for continued monitoring, including ongoing weakness in certain commercial real estate and consumer lending segments, growing exposure to private credit and nonbank financial institutions, elevated unrealized securities losses, and interest rate uncertainty. While credit risks remain manageable overall, conditions vary across asset classes, underscoring the importance of continued risk management.
On May 12, 2026, the FASB held a public roundtable to evaluate the implementation of the Current Expected Credit Loss (CECL) standard to gather feedback from banks, credit unions, auditors, regulators, investors, and other stakeholders regarding the standard's effectiveness and implementation challenges. Participants generally agreed that CECL improved forward-looking credit loss estimates but raised concerns about the significant cost, complexity, modeling requirements, and documentation burden associated with compliance, particularly for community banks and smaller financial institutions. Several stakeholders suggested that FASB consider exemptions, practical expedients, or simplified approaches for smaller institutions, while others questioned whether the benefits of CECL justify its operational burden. Feedback from the roundtable will be considered by FASB as it evaluates whether future changes or relief measures are warranted as part of the ongoing review process.
On May 19, 2026, the Federal Financial Institutions Examination Council (FFIEC) and the federal banking agencies proposed the first significant revisions to the CAMELS rating framework in nearly 30 years. The proposal would retain the existing CAMELS structure while updating rating definitions and evaluation factors to place greater emphasis on material financial risks and an institution’s overall risk profile. A key change is the reduced influence of the Management component in both component and composite ratings, with supervisory ratings more closely tied to financial condition and risk outcomes rather than examiner assessments of processes and governance. The agencies stated that the revisions are intended to make ratings more predictable, improve consistency across institutions, and strengthen the connection between CAMELS ratings and a bank’s actual financial risk profile while maintaining the framework’s role as a primary supervisory tool.
On May 27, 2026, the FDIC released its most recent Quarterly Banking Profile covering the first 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 4,278 commercial banks. Highlights are included below:
The following selected FASB exposure drafts and projects are outstanding as of June 30, 2026.
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.
During its March 18, 2026, meeting, the FASB discussed recent feedback on the proposal and decided to pause further deliberations until it evaluates broader feedback received from the Private Company Council.
On October 29, 2025, the FASB added a project to its technical agenda that includes:
On April 15, 2026, the FASB completed initial deliberations and directed staff to draft a proposed ASU for vote.
During its May 27, 2026, meeting, the FASB added a project to its technical agenda on subjective acceleration clauses and made the following decisions.
The FASB directed the staff to draft a proposed ASU for vote by written ballot.
At its April 22, 2026, meeting, the FASB added a project to its technical agenda to evaluate extending the portfolio layer method—currently available for certain portfolios of financial assets—to financial liabilities. The decision was driven by stakeholder feedback, including requests from the financial services industry and comments received during the FASB’s 2025 agenda consultation, which indicated that extending the method could better align hedge accounting with institutions’ risk management practices. If ultimately adopted, the project could allow entities to apply portfolio-layer fair value hedge accounting to groups of liabilities, potentially improving the accounting representation of interest rate risk management strategies. The project is in its early stages, and the Board has indicated that future deliberations will be needed before any changes to current accounting requirements are proposed.
The EITF met on June 23, 2026, and deliberated guidance on electricity contracts and consideration payable to a customer.
The next meeting is scheduled for September 22, 2026.
The Private Company Council (PCC) met June 1—2, 2026 to discuss agenda priorities and projects:
The next PCC meeting is scheduled for September 28—29, 2026.
The following table contains significant implementation dates and deadlines for standards issued by the FASB and others. 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. For all listed ASUs, the Company expects no material effect from these amendments on its financial statements, results of operations, or cash flows. View Appendix B.
NOTE: The disclosures in the previous appendix are not intended to be all inclusive. All pronouncements issued during the period should be evaluated to determine whether they are applicable to your Company. Through June 30, 2026, the FASB has issued the following ASUs this year.
