FASB Proposes Targeted Improvements to the Codification

The FASB has released a proposed Accounting Standards Update (ASU) that would make targeted improvements to the FASB Accounting Standards Codification®. The proposal is part of the “evergreen project” on the FASB’s agenda to make technical corrections and other minor enhancements to various Codification topics. Although the proposal addresses a total of 21 separate issues, the Board indicated that it is particularly seeking stakeholder feedback on its proposed clarifications related to the following six topics:

• The scope of the practical expedient and accounting policy election introduced by ASU 2025-05, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (Issue 6).
• The evaluation of whether a rabbi trust is a variable interest entity and therefore must be consolidated under ASC 810 (Issue 11).
• Whether “a nonvested employee share-based payment award” would be subject to guidance other than ASC 718 as a result of a modification to the award that occurs “after the grantee is no longer an employee” (Issue 12).
• When an entity should assess “whether a contract qualifies for the NPNS scope exception” under ASC 815 (i.e., whether the assessment should be performed at contract inception or a later date) (Issue 18).
• Updates to the diagram in ASC 815-10-55-2 that “depicts the process for determining whether a freestanding contract is within the scope” of ASC 815-10, as well as a reference clarifying “the market risk benefits derivatives scope exception” (Issue 19).
• Application of the spot method to net investment hedges “when the hedging relationship is not considered perfectly effective” (Issue 20).

Comments on the proposed ASU are due by November 19, 2026. For more information, see the press release on the FASB’s Web site.