Key points at a glance:

  • The Financial Accounting Standards Board (FASB) on Wednesday issued a Generally Accepted Accounting Principles (GAAP) accounting standards update to provide relief for companies facing challenges in applying current guidance under Topic 326 (Financial Instruments—Credit Losses) and Topic 606 (Revenue from Contracts with Customers) for certain receivables and contract assets. According to a FASB press release that day, the update aims to simplify related measurement requirements.
  • The change stems from feedback from private companies that current guidance requires costly and complex forecasts of credit losses on receivables and contracts. To address this, the new rule provides a "practical expedient"—a simpler way to handle the rules—allowing all entities to assume that current conditions remain unchanged over the remaining life of the asset, and allowing private entities to consider collections that may occur after the balance sheet date in their estimates.
  • The amendments and optional new guidance "are expected to reduce the time and effort required to estimate credit losses on current receivables and current contract assets, while continuing to provide investors and other users of financial statements with decision-useful information," the FASB press release said.

Deeper analysis:

The new standards update comes as the FASB is conducting an agenda consultation project aimed at gathering feedback from investors and financial statement preparers on new standards updates. Stakeholders have raised several new areas of standards-setting concern, including potential projects related to stablecoins (as previously reported by CFO Dive).

The credit losses guidance is one of four accounting standards update (ASU) projects the FASB completed this year. Other projects addressed: share-based consideration paid to customers (Topics 718 and 606), determining the accounting acquirer when purchasing a variable interest entity (Topics 805 and 810), and a relatively minor cleanup project that clarified the effective date of a requirement for companies to disaggregate income statement expenses for fiscal years beginning after December 15, 2026.

In March, a separate contract-related project (focusing on the presentation of contract assets and contract liabilities held by contractors in construction contracts) was shelved because the board concluded that issues with current standards could be addressed through "educational efforts." The FASB issued a report in April to fill gaps in the application of revenue recognition guidance for construction contracts (as previously reported by CFO Dive).

Looking ahead, according to a second-quarter 2025 report from FASB Chair Richard Jones, the FASB expects to issue seven pending high-priority or technical agenda projects by year-end. The board has directed staff to draft final ASUs on several topics, including software costs, government grants, and derivatives.