Responding to a long-supported position of the American Bankers Association, the Financial Accounting Standards Board this week issued an accounting standards update, or ASU, that effectively ends the “CECL double count” that often applies to purchased loans in bank mergers.
Under current generally accepted accounting principles, acquired financial assets are initially recorded at their amortized cost basis, with an allowance for expected credit losses recognized separately. The CECL double count is caused in merger transactions by recording CECL’s expected lifetime credit losses as an expense, even though it has already been considered in the fair value measurement of the loan. Under the ASU, the allowance for credit losses on most loans will be “grossed-up” to the purchase price of the acquired financial asset instead of applied to expense. The new accounting should better reflect the economics of the merger transaction, as well as the yields of the acquired loans in subsequent periods.
The new ASU is effective for annual reporting periods beginning after Dec. 15, 2026, though early adoption will be permitted.
