The Financial Accounting Standards Board (FASB) recently amended the guidance around the requirements for estimated Current Expected Credit Losses (CECL) that will simplify the process for many entities, particularly companies that are not public business entities (PBE). This guidance is contained in Accounting Standards Update 2025-05 Measurement of Credit Losses for Accounts Receivable and Contract Assets (ASU2025-05).
To refresh your memory, the CECL guidance, among other things, requires companies to estimate their future expected credit losses by developing “reasonable and supportable” forecasts which must incorporate macroeconomic data. This requires time and costs that financial statement issuers and stakeholders didn’t believe were having a material impact on the estimate of expected credit losses. In fact, the process involved estimating credit losses for amounts that were collected before the financial statements were issued.
You read that correctly: Even if the amounts were collected before the financial statements were issued, they still needed to be included in the estimate of expected credit losses as of the reporting date. For companies other than public business entities (private companies), this really didn’t make a lot of sense, as most of those entities tend to issue financial statements well after the year-end reporting date, unlike their public counterparts that must adhere to the SEC’s timelines. In most cases, a significant amount of the outstanding balances would be collected by the time the financial statements were issued.
Thankfully, the FASB recognized the burden this was creating and amended the guidance incorporating recommendations from the Private Company Council. The amended guidance takes effect for fiscal years starting after December 15, 2025, though early adoption is permitted. ASU 2025-05 applies to accounts receivable and contract assets arising from transactions under ASC 606 (revenue recognition), including those acquired through business combinations.
Summary of amended guidance
The practical expedient regarding the development of a reasonable and supportable forecast
As a practical expedient, all entities may elect to assume that current conditions as of the balance sheet date will not change for the remaining expected life of the asset. However, if the current conditions differ from those over the period for which any historical data was collected, the company must consider whether it’s necessary to adjust the historical loss information. In instances where the company concludes that current conditions will continue to exist, it removes the burden of obtaining additional macroeconomic data to include as part of its forecast. Individual customer experience must still be incorporated, such as a customer experiencing financial distress, even if it hasn’t yet affected their loss experience. This expedient is available to both PBEs and private companies.
Accounting policy election related to collection before financial statements are issued
Companies that are not PBEs that elect the practical expedient may also make an accounting policy election to consider collection activity after the balance sheet date but before the financial statements are available to be issued. Therefore, the allowance for expected credit losses for balances collected before the financial statements are issued would be zero. Only the remaining balances would be evaluated as part of the estimate of expected credit losses. This could significantly reduce the amount of time spent documenting the evaluation when the company already knows that the balances have been collected.
Impact on reporting and disclosure
Companies that elect the practical expedient (and private companies that elect the expedient and the accounting policy election) must disclose the election. Additionally, for those companies that make the accounting policy election, the date through which it was considered subsequent activity must be disclosed.
Changing this date is not considered a change in accounting principle, which gives private companies added flexibility to address changes in facts and circumstances. For instance, a company preparing for a financing round may choose to accelerate the date in a given year to deliver financial statements to investors or lenders in a timelier manner.
Evaluate your options now
Because the FASB is allowing early adoption for everyone, companies can start using this simpler method right away and benefit from the relief it provides. If you’re unsure how to implement the amended guidance or properly reflect it in your financial statements, now’s the time to act. We’re already helping clients apply the practical expedient and navigate the disclosure requirements—often uncovering efficiencies or updates that materially reduce the effort involved. If you’d like support evaluating the impact or operationalizing these changes, let’s connect. We’re here to ensure you stay ahead of regulatory shifts, especially those that directly affect your reporting obligations.
About the Author
Mike Vanscoy is a Principal in SolomonEdwards’ Private Equity Services practice with over 25 years of national and international experience in various aspects of technical accounting and financial reporting, financial and accounting management, audit compliance, financial management standards and internal policies/controls and procedures.
To learn more, connect with Mike on LinkedIn, at mvanscoy@solomonedwards.com or call 610.902.0440.
