Objective:

The objective of this project is to consider (1) expanding the scope of the purchased credit deteriorated (PCD) accounting model to all loans acquired in a business combination and (2) modifying the presentation of expected credit losses for acquired financial assets.
 

Background:

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires organizations to measure all expected credit losses for financial instruments held at the reporting date. One of the changes made in this Update was intended to simplify the accounting for acquired financial assets that have experienced credit deterioration since origination. After the issuance of the Update, the Board received feedback that accounting for acquired financial assets remained complex and that there were potential consequences of the accounting model in place under CECL. In 2020, FASB staff began conducting outreach with stakeholders who adopted Update 2016-13 as part of the Post-Implementation Review (PIR) process, and stakeholders raised similar concerns. Stakeholders also emphasized these issues at the CECL Public Roundtable hosted by the FASB on May 20, 2021.

On July 14, 2021, the Board decided to add a project to its technical agenda to address the accounting for acquired financial assets within the scope of Update 2016-13 and directed the staff to perform additional research and outreach on possible amendments to accounting for acquired financial assets.

Exposure Draft(s):

There are no exposure documents at this time.

There are no media releases or educational materials at this time.

Decisions Reached at Last Meeting (March 29, 2023):

Presentation

The Board decided not to change the presentation of purchased financial assets with credit deterioration (PCD) and to include a question about presentation in the proposed Accounting Standards Update.

Transition

The Board decided to require a modified retrospective transition method whereby the expanded PCD scope would be applied retrospectively to the date an entity adopted the amendments in Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

Analysis of Costs and Benefits

The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs and expected benefits of the amendments in the proposed Update and that the expected benefits of those amendments would justify the expected costs.

Comment Period

The Board decided on a 60-day comment period for the proposed Update.

 

Tentative Board Decisions Reached to Date (as of March 29, 2023):

A summary of the Board’s tentative decisions reached to date can be found here.

The Board meeting minutes, handouts, and videos are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

The following are links to the minutes for each meeting.  To view Board meetings and handouts from the past 90 days, click here.
 

March 29, 2023*	Board Meeting—The Board continued initial deliberations and discussed existing presentation requirements for purchased financial assets. The Board also determined presentation, transition, whether expected benefits would justify expected costs, and comment period.
October 12, 2022	Board Meeting—The Board continued initial deliberations and decided to amend the term purchased with credit deterioration (PCD) to purchased financial assets (PFA). The Board also decided on seasoning criteria and that financial assets acquired in a business combination should be presumed seasoned. The Board also made scope decisions relating to the PFA model.
February 2, 2022	Board Meeting—The Board began initial deliberations and decided to expand the PCD accounting model to all assets acquired in a business combination or asset acquisition, with limited exceptions. The Board also decided that an element of seasoning was needed to prevent in-substance originations from applying the PCD accounting model.
July 14, 2021	Board Meeting—The Board added a project to its agenda to address the accounting for acquired financial assets within the scope of Update 2016-13.

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot.

Daniel Stuhlemmer
Project Manager
dstuhlemmer@fasb.org

Chase Hodges
Practice Fellow
chodges@fasb.org

Emma Gough
Postgraduate Technical Assistant
egough@fasb.org

Josh Costo
Postgraduate Technical Assistant
jcosto@fasb.org