PROJECT UPDATE

Financial Instruments─Credit Losses (Topic 326)─Acquired Financial Assets

Last updated on October 17, 2022. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Sections updated on the date above are indicated with an asterisk *)

 

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 (October 12, 2022):


The Board decided to amend the term purchased with credit deterioration (PCD) to purchased financial assets (PFA) for referencing the financial asset acquisition accounting model.

The Board decided that seasoning should be defined using principles-based criteria that considers the acquirer’s involvement with the asset prior to acquisition, with a bright-line period of 90 days.

The Board also decided that financial assets acquired in a business combination should be presumed seasoned.

Seasoned assets should be accounted for under the PFA accounting model.

The Board decided that credit cards, home equity line of credits (HELOCs), and other revolving arrangements with active borrowing privileges should be included within the scope of the PFA model when acquired through both business combinations and asset acquisitions.

The Board decided that assets not recognized at fair value in a business combination, primarily contract assets and a lessor’s net investment in sales-type and direct financing leases, should be included within the scope of the PFA model when acquired through both business combinations and asset acquisitions.

 

Tentative Board Decisions Reached to Date (as of October 12, 2022):


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.
 
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 will continue deliberations at a future meeting.

Daniel Stuhlemmer
Project Manager
dstuhlemmer@fasb.org

Chase Hodges
Practice Fellow
chodges@fasb.org

Katie Deakins
Postgraduate Technical Assistant
kdeakins@fasb.org

Emma Gough
Postgraduate Technical Assistant
egough@fasb.org

The staff has prepared this summary for information purposes only. Any Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
 

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