Fall 2025

Initiatives arising from the Private Company Council (PCC) are relevant to a great many professionals serving private companies. In the summer 2024 issue of the Pennsylvania CPA Journal, we dove into the implications and application of Topic 326’s current expected credit losses (CECL) on private companies, and the PCC has been working on a practical expedient to help reduce the complexities of applying CECL for those companies.

CECL’s Post-Implementation Review

ASC 326’s CECL has been an area of ongoing post-implementation review since 2020, with the expectation that CECL’s implementation would produce higher loss provisions and allowances, while providing improved information and enhanced risk management. Financial institutions were the primary drivers for more forward-looking assessments of credit losses. However, a report by PCBB – a correspondent bank providing services to other banks – indicated that two-thirds of community financial institutions (CFIs) reported either no change or a reduction in their allowance for credit losses with CECL adoption (92% had assets under $1 billion), while larger CFIs with much larger and varied consumer credit portfolios reported notably higher allowances.

Private Company Practical Expedients

In a private company corollary to the above, the PCC has been deliberating the Accounting Standards Update (ASU), Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets for Private Companies and Certain Not-for-Profit Entities. The proposed practical expedient would apply to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers, as well as the estimated expected credit losses for current accounts receivable and current contract assets acquired in a transaction accounted for under Topic 805, Business Combinations.

The practical expedient is expected to ease the burden of documenting and estimating expected changes in economic conditions. However, preparers expressed concern that the requirement to consider adjustments to historical data to reflect current economic conditions might diminish the benefits of applying the practical expedient. One PCC member suggested adding language in the basis for conclusions to clarify that only material economic conditions should be considered. A Financial Accounting Standards Board (FASB) member noted that requiring consideration of current economic conditions as of the balance sheet date would affect only a small subset of accounts that were not collected after year-end.

In responses to a question of how a material event occurring after the balance sheet date through when the cash collections are evaluated would be considered, the PCC clarified that all material circumstances should be considered, and the amendments would allow the consideration of current actual events rather than hypothetical circumstances.

The intent of the proposed amendments is to include the consideration of both historical data and current conditions. The consideration should conclude on the following:

• The reason for adopting the practical expedient.
• How current conditions and subsequent cash collections are connected.
• Why the receivables aging rate changes as time passes.

On the presumption that the consideration of historical and current conditions is a continuing process, it was noted that even if the date through which subsequent cash collections is evaluated changes from the previous year, such applications would not constitute a change in accounting policy.

Accordingly, the PCC affirmed its intent regarding the proposed recognition and measurement practical expedient and the accounting policy election to consider subsequent collection activity, including the requirement that entities must elect the practical expedient to elect the accounting policy to consider subsequent cash collection activity subsequent to the balance sheet. The dates through which subsequent cash collection activities were evaluated should be disclosed for all periods presented in the financial statements. Accordingly, added expedient disclosure requirements include the following:

• Disclosure of the use of the practical expedient and the accounting policy election to consider subsequent cash collections (if elected), and
• Disclosure of the date through which subsequent cash collection activity was considered for entities that have elected the accounting policy to consider subsequent cash collection activity.

ASU 2025-05 Issued

The FASB took quick (and expanded) action on PCC's recommendations, and on July 30, 2025, issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets. It provides:

• All entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset.
• Entities other than public business entities (PBEs), including employee benefit plans and not-for-profits, that elect the practical expedient are permitted to make an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses.

While making the practical expedient available to all entities was unexpected, the caveat is that it, in itself, merely helps to limit the variables in developing reasonable and supportable forecasts as part of the CECL assessment. Establishing that the accounting policy election to consider subsequent collection activity in the CECL assessment is an election only available to other-than-PBEs was key to reducing the burdens for “private companies,” and should substantively reduce forecast assessment complexities.

FASB did retain the above disclosure requirements for the practical expedient election, for the accounting policy election, and, in annual reporting periods, the date through which subsequent collection activities were considered.

Entities electing the practical expedient or electing both the practical expedient and the accounting policy election pursuant to ASU 2025-05 should apply the amendments prospectively. The amendments will be effective for reporting periods beginning after Dec. 15, 2025, but early adoption is permitted for periods in which financial statements haven’t yet been made available for issuance.

Finally, the ASU affirms that an entity other than a PBE that elects the practical expedient and accounting policy election after the effective date would not need to perform a GAAP preferability assessment in accordance with ASC 250, Accounting Changes and Error Corrections. 

Initiatives arising from the Private Company Council (PCC) are relevant to a great many professionals serving private companies. In the summer 2024 issue of the Pennsylvania CPA Journal, we dove into the implications and application of Topic 326’s current expected credit losses (CECL) on private companies, and the PCC has been working on a practical expedient to help reduce the complexities of applying CECL for those companies.

CECL’s Post-Implementation Review

ASC 326’s CECL has been an area of ongoing post-implementation review since 2020, with the expectation that CECL’s implementation would produce higher loss provisions and allowances, while providing improved information and enhanced risk management. Financial institutions were the primary drivers for more forward-looking assessments of credit losses. However, a report by PCBB – a correspondent bank providing services to other banks – indicated that two-thirds of community financial institutions (CFIs) reported either no change or a reduction in their allowance for credit losses with CECL adoption (92% had assets under $1 billion), while larger CFIs with much larger and varied consumer credit portfolios reported notably higher allowances.

Private Company Practical Expedients

In a private company corollary to the above, the PCC has been deliberating the Accounting Standards Update (ASU), Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets for Private Companies and Certain Not-for-Profit Entities. The proposed practical expedient would apply to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers, as well as the estimated expected credit losses for current accounts receivable and current contract assets acquired in a transaction accounted for under Topic 805, Business Combinations.

The practical expedient is expected to ease the burden of documenting and estimating expected changes in economic conditions. However, preparers expressed concern that the requirement to consider adjustments to historical data to reflect current economic conditions might diminish the benefits of applying the practical expedient. One PCC member suggested adding language in the basis for conclusions to clarify that only material economic conditions should be considered. A Financial Accounting Standards Board (FASB) member noted that requiring consideration of current economic conditions as of the balance sheet date would affect only a small subset of accounts that were not collected after year-end.

In responses to a question of how a material event occurring after the balance sheet date through when the cash collections are evaluated would be considered, the PCC clarified that all material circumstances should be considered, and the amendments would allow the consideration of current actual events rather than hypothetical circumstances.

The intent of the proposed amendments is to include the consideration of both historical data and current conditions. The consideration should conclude on the following:

• The reason for adopting the practical expedient.
• How current conditions and subsequent cash collections are connected.
• Why the receivables aging rate changes as time passes.

On the presumption that the consideration of historical and current conditions is a continuing process, it was noted that even if the date through which subsequent cash collections is evaluated changes from the previous year, such applications would not constitute a change in accounting policy.

Accordingly, the PCC affirmed its intent regarding the proposed recognition and measurement practical expedient and the accounting policy election to consider subsequent collection activity, including the requirement that entities must elect the practical expedient to elect the accounting policy to consider subsequent cash collection activity subsequent to the balance sheet. The dates through which subsequent cash collection activities were evaluated should be disclosed for all periods presented in the financial statements. Accordingly, added expedient disclosure requirements include the following:

• Disclosure of the use of the practical expedient and the accounting policy election to consider subsequent cash collections (if elected), and
• Disclosure of the date through which subsequent cash collection activity was considered for entities that have elected the accounting policy to consider subsequent cash collection activity.

ASU 2025-05 Issued

The FASB took quick (and expanded) action on PCC's recommendations, and on July 30, 2025, issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets. It provides:

• All entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset.
• Entities other than public business entities (PBEs), including employee benefit plans and not-for-profits, that elect the practical expedient are permitted to make an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses.

While making the practical expedient available to all entities was unexpected, the caveat is that it, in itself, merely helps to limit the variables in developing reasonable and supportable forecasts as part of the CECL assessment. Establishing that the accounting policy election to consider subsequent collection activity in the CECL assessment is an election only available to other-than-PBEs was key to reducing the burdens for “private companies,” and should substantively reduce forecast assessment complexities.

FASB did retain the above disclosure requirements for the practical expedient election, for the accounting policy election, and, in annual reporting periods, the date through which subsequent collection activities were considered.

Entities electing the practical expedient or electing both the practical expedient and the accounting policy election pursuant to ASU 2025-05 should apply the amendments prospectively. The amendments will be effective for reporting periods beginning after Dec. 15, 2025, but early adoption is permitted for periods in which financial statements haven’t yet been made available for issuance.

Finally, the ASU affirms that an entity other than a PBE that elects the practical expedient and accounting policy election after the effective date would not need to perform a GAAP preferability assessment in accordance with ASC 250, Accounting Changes and Error Corrections.