FASB Effectively Eliminates Day 1 Double Count for Acquired Loans

Home News & Insights FASB Effectively Eliminates Day 1 Double Count for Acquired Loans

On November 12, 2025, the FASB issued ASU 2025-08, delivering long-awaited reform to the CECL standard. ASU 2025-08 responds directly to concerns raised during the post-implementation review of the CECL standard related to its interplay with purchase accounting, including complexity, inconsistent application of purchased credit deteriorated (“PCD”) criteria, and the Day 1 double count required for non-PCD loans.

Summary of ASU 2025-08 Amendments

ASU 2025-08 introduces a new classification for acquired financials assets, purchased seasoned loans (“PSLs”) and requires PSLs to use the gross-up approach, which was previously limited to PCD loans. Key provisions include:

  • All loans (except credit cards) acquired in a business combination automatically qualify as PSLs and recorded using gross-up accounting
  • In transactions where loans are not acquired via a business combination, loans will be subject to a seasoning test. This seasoning test classifies loans purchased 90+ days after origination and where the buyer was not involved in the origination as PSLs
  • Credit cards, debt securities, and trade receivables do not fall under ASU 2025-08
  • The ASU is effective for annual periods beginning after December 15, 2026, with early adoption permitted. The amendments should be applied prospectively following adoption.

Why This Matters

The ASU directly addresses one of the industry’s most significant CECL pain points: non-PCD loans required a Day 1 provision despite the fair value determination already reflecting expected losses. The result was an unintuitive double count of the credit mark. By expanding gross-up accounting to PSLs, ASU 2025-08 represents a significant improvement to purchase loan accounting since the CECL standard’s introduction, as it simplifies purchase accounting, improves comparability, and better reflects economic reality.

For more information and support with the CECL standard, we encourage you to visit wilwinn.com/services/cecl. Additionally, given the interaction between CECL and purchase accounting under the updated guidance, we also encourage you to visit wilwinn.com/services/mergers-acquisitions to learn more about the services we provide related to acquisition accounting. Our expertise in these areas can help you navigate these evolving standards.

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