FASB proposes improvements to accounting for purchased financial assets

June 27, 2023

FASB is seeking comments on a proposed Accounting Standards Update (ASU) that is intended to improve the accounting for purchased financial assets, requiring that all the assets — with certain limited exceptions — follow an existing gross-up approach.

The ASU proposes changes to Topic 326, Financial Instruments — Credit Losses, which provides criteria for identifying purchased financial assets with credit deterioration (PCD or PCD assets).

Since the issuance of its standard on credit losses in 2016, FASB has monitored and assisted stakeholders with implementation through the post-implementation review (PIR) process, according to a news release. FASB heard feedback, particularly from investors, regarding the accounting for financial assets acquired in a business combination or asset acquisition. Specifically, FASB heard that it should reconsider the accounting for purchased financial assets.

"Under current GAAP, if a purchased financial asset has experienced a more-than-insignificant deterioration in credit quality since origination, it is accounted for under the PCD model (or gross-up approach) with no credit loss recorded on acquisition," FASB said. "If instead the purchased financial asset has not experienced a more-than-insignificant credit deterioration since origination, it is accounted for in a manner consistent with an originated financial asset (referred to as non-PCD accounting). Under non-PCD accounting, a Day 1 credit loss is recorded in addition to any credit discount reflected in the fair value of the acquired assets."

Preparers and others provided feedback that it was "unnecessarily complex" to have two accounting models for purchased financial assets, the FASB release said. Those providing feedback said they would prefer to apply a single accounting model to recognize credit losses for all purchased financial assets.

"These stakeholders noted that assessing whether credit has deteriorated since origination is subjective and inconsistently applied, which creates comparability issues and diminishes the decision usefulness of financial information," the release said.

Comments on the proposed ASU will be accepted through Aug. 28. They can be emailed to This email address is being protected from spambots. You need JavaScript enabled to view it..

[Journal of Accountancy]