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FASB seeks comments on proposal to improve the accounting for purchased financial assets

Written on Jul 14, 2023

FASB has published a proposed Accounting Standards Update (ASU) intended to improve the accounting for purchased financial assets.  

Since the issuance of the credit losses standard in 2016, FASB has monitored and assisted stakeholders with implementation through the post implementation review process (PIR). Through that process, FASB heard feedback, particularly from investors, regarding the accounting for financial assets acquired in a business combination or asset acquisition; namely that the FASB should reconsider the accounting for purchased financial assets. 

Under current GAAP, if a purchased financial asset has experienced a more-than-insignificant deterioration in credit quality since origination, it is accounted for under the purchased credit deteriorated (PCD) model (referred to as the gross-up approach) with no credit loss recorded on acquisition. If instead the purchased financial asset has not experienced a more-than-insignificant credit deterioration since origination, it is accounted for in a manner consistent with an originated financial asset (referred to as non-PCD accounting). Under non-PCD accounting a day-one credit loss is recorded in addition to any credit discount reflected in the fair value of the acquired assets. 

Investors and preparers provided feedback that having two accounting models for purchased financial assets is unnecessarily complex and they would prefer to apply a single accounting model to recognize credit losses for all purchased financial assets. These stakeholders noted that assessing whether credit has deteriorated since origination is subjective and inconsistently applied, which creates comparability issues and diminishes the decision usefulness of financial information. In addition, they were particularly concerned with the non-PCD accounting model and the requirement to record a day-one allowance in addition to any credit discount reflected in the initial fair value. 

The proposed ASU would address these concerns by requiring that all acquired financial assets, with certain limited exceptions, would follow the existing gross-up approach. The Board invites comments on all matters in this Exposure Draft until Aug. 28, 2023. Interested parties may submit comments in one of three ways: 

  • Using the electronic feedback form available on the FASB website at Exposure Documents Open for Comment 

  • Emailing comments to, File Reference No. 2023-ED400 

  • Sending a letter to “Technical Director, File Reference No. 2023-ED400, FASB, 801 Main Avenue, PO Box 5116, Norwalk, CT 06856-5116.” 

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