By Colin M. Hannifin, CPA, Business Assurance & Advisory Services Senior Manager
Overview of ASU 2025-05: A practical update from FASB
On July 30, 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-05 Financial Instruments – Credit Losses. The new standard codifies previously proposed improvements to the application of Accounting Standards Codification (ASC) Topic 326, Financial Instruments – Credit Losses.
Two key provisions designed to reduce complexity
ASU 2025-05 includes two primary provisions related to estimating the allowance for credit losses for current contract assets and current receivables arising from transactions recorded in accordance with ASC 606, Revenue from Contracts with Customers. The new provisions apply to just these current assets. The provisions are:
- All entities may elect a practical expedient to assume that the conditions present as of the balance sheet date will not change throughout the remaining life of the asset. This should significantly simplify the process of developing reasonable and supportable forecasts, as required by ASC 326.
- An entity other than a public business entity that elects the above practical expedient may make an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses. This should simplify management’s determinations of expected credit losses for short-term assets.
These provisions are optional but will likely be popular as they ease management’s burden of determining an appropriate allowance for credit losses for these current assets.
Why these changes matter to private companies
The new standard arose from feedback from private company stakeholders, which resulted in the Private Company Council initiating the standard-setting process. The motivating feedback was primarily around the cost of complexity of developing a reasonable and supportable forecast for current assets, especially when those assets converted to cash prior to the issuance of the financial statements.
Implementation timeline and early adoption option
The new standard is effective for annual reporting periods beginning after December 15, 2025, and early adoption is permitted.
Questions on adoption of the new standard for your business? Contact your Keiter Opportunity Advisor or Email | Call: 804.747.0000.
About the Author
Colin M. Hannifin, CPA, Business Assurance & Advisory Services Senior Manager
Colin is a Business Assurance & Advisory Services Senior Manager at Keiter. He has significant experience in public accounting for both the not-for-profit and private sectors. Colin’s clients rely on him for sound advice and insights on accounting regulations and changes that may impact their business.
More Insights from Colin M. HannifinThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
