FASB Holds April 30 Meeting

At its April 30, 2025, meeting, the FASB (1) continued redeliberating its proposed Accounting Standards Update (ASU) Financial Instruments — Credit Losses (Topic 326): Purchased Financial Assets and (2) added to its agenda a project on the measurement of paid-in-kind (PIK) dividends on equity-classified preferred stock.

The Board decided to narrow the project’s objective by retaining the existing accounting for purchased financial assets with credit deterioration. Other tentative decisions made by the Board include the following:

• The scope of the final ASU would include loan receivables, excluding credit cards, but would not include held-to-maturity debt securities.
• The proposed “seasoning criteria” would be retained.
• For seasoned loan receivables, excluding credit cards:
  • The initial amortized cost basis would be calculated as “the purchase price plus the initial allowance for credit losses.”
  • The interest method would be used “to recognize as interest income the noncredit discount or premium.”
  • Entities would not apply certain guidance in (1) ASC 310 on accruing interest income and (2) ASC 326 on measuring expected credit losses by estimating expected recoveries.
  • Entities would have the option of remeasuring “the allowance for credit losses by aggregating seasoned loan receivables, excluding credit cards, and existing financial assets on the basis of similar risk characteristics when expected credit losses are estimated using a method other than a discounted cash flow.”
• The existing disclosure requirements in ASC 326 would not be amended.
• The amendments would be effective for “annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods.” They would be applied prospectively, and early adoption would be permitted.

The Board has directed the staff to draft a final ASU for a vote by written ballot. For more information, see the tentative Board decisions on the FASB’s Web site.

The FASB followed recommendations made by the EITF (this project is based on an EITF Issue). Specifically, the Board decided that (1) entities would be required to measure PIK dividends on the basis of “the contractual terms of the preferred stock agreement, including the stated PIK dividend rate,” and (2) the amendments would apply to, and be required for, all entities. The Board also discussed certain considerations related to transition, transition disclosures, and early adoption.

The Board has directed the staff to draft a proposed ASU for a vote by written ballot. For more information, see the tentative Board decisions on the FASB’s Web site.