BAN23SS01. Navigating the FASB’s Proposed ASU on Purchased Financial Assets, presented by KPMG

The FASB issued the proposed ASU, Financial Instruments – Credit Losses (Topic 326), Purchased Financial Assets on June 27, 2023. The proposed ASU would address comparability and complexity concerns by eliminating the credit deterioration criteria that currently limit the use of the gross-up approach in ASC 326 solely to purchased financial assets with credit deterioration (PCD). The proposed ASU would eliminate the need for companies to determine if purchased financial assets have experienced a ‘more-than-insignificant’ credit deterioration. This change would expand the population of financial assets, other than AFS debt securities, that would be subject to the purchased financial assets accounting model (i.e. the gross-up method) in ASC 326. The gross-up method records an allowance at the date of acquisition with an offsetting entry to the asset’s amortized cost basis. The proposed amendments would be applied on a modified retrospective basis as of the beginning of the fiscal year in which a company adopted the amendments in the credit impairment standard. This approach would result in a cumulative-effect adjustment to retained earnings as of the later of (1) the beginning of that reporting period or (2) the beginning of the earliest period presented.

In this session, we will explore the eligibility requirements of the proposed ASU; the transition impacts on the provision, interest income and the effective interest rate; as well as practical examples illustrating the application of the proposed ASU.

Learning Objectives:

• Analyze the requirements of the proposed ASU
• Determine transition impacts on the provision, interest income and the effective interest rate
• Determine proper assessment for step-through calculations illustrating the impacts of the proposed ASU