FASB Changes Direction on CECL Double Count Courtesy of FORVIS MAZARS At an April 29, 2025, FASB meeting, the board changed direction on its proposed accounting treatment for purchased financial assets (PFA). FASB acknowledged the unintended consequences of purchased credit deterioration (PCD) accounting in the original CECL model. Here are the details. BACKGROUND Accounting Standards Update (ASU) 2016-13 updated the definition and accounting treatment for purchased credit impaired assets, rechristened them as purchased credit deteriorated (PCD) assets, and updated Accounting Standards Codification (ASC) 805, Business Combinations, to require the recognition of an allowance for credit losses in the period of acquisition for both PCD and non-PCD assets. The determination of PCD versus non-PCD determines how the allowance for credit loss flows through the financial statements. For PCD assets, the gross-up method includes the impact in the day one business combination entries with no impact to expense. For non-PCD assets, the impact is reflected outside of business combination entries (day two) and hits expense (double count of credit). FASB’s decisions on PCD accounting were one of the most debated deliberations of the standard-setting process. During deliberations and in the post-implementation review process, FASB received feedback that the PCD/non-PCD determination for acquired financial assets is complex and the credit discount on non-PCD loans is viewed as double counted upon acquisition, unintuitive and not reflective of the underlying economics. 26 WEST VIRGINIA BANKER
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