The Rundown: Second Quarter 2026

The Financial Accounting Standards Board (FASB) issued two new Accounting Standard Updates (ASUs) in the second quarter of 2026. The Government Accounting Standards Board (GASB) did not issue any new GASB statements in the second quarter of 2026. The latest issue of the Rundown features a summary of the new standards issued in the second quarter of 2026. For summaries of standards issued in previous periods, view our previous rundowns here. In addition, we’ve got a comprehensive listing of all newly effective standards for calendar year-end December 31, 2026, broken down by public business entities, private entities and  for June 30 and December 31 year-end governments. 

Second Quarter 2026 Newly Issued Standards

ASU 2026-02

Environmental Credits and Environmental Credit Obligations

Background

Entities are increasingly subject to regulatory compliance programs related to emissions, which often result in obligations that may be settled with environmental credits. Additionally, some entities voluntarily commit to reducing their emissions and use environmental credits to partially offset their emissions. Some common examples include carbon offsets and:

• Emissions allowances originating from cap-and-trade programs
• Renewable identification numbers (RINs) originating from the U.S. Renewable Fuel Standard  
• Renewable energy certificates originating from U.S. State Renewable Portfolio Standards

Extant generally accepted accounting principles (GAAP) do not provide specific authoritative guidance on how to recognize and measure environmental credits or the related obligations that result from regulatory compliance programs. As a result, there is diversity in practice with some entities analogizing to ASC 330 Inventory, others ASC 350-30 Intangibles and others ASC 450 Contingencies.

Changes

The amendments in this Update reduce diversity in practice by providing specific authoritative guidance for the recognition, measurement, and disclosure of “environmental credits” and “environmental credit obligations”.

• Environmental credits (assets) are defined in this Update as: Enforceable rights represented to prevent, control, reduce, or remove emissions or other pollution that are separately transferable in an exchange transaction.
• Environmental credit obligations (liabilities) are defined in this Update as: Enforceable obligations resulting from regulatory compliance programs represented to prevent, control, reduce, or remove emissions or other pollution that may be settled with environmental credits.

Environmental Credits (Assets)

Recognition: An entity is required to recognize an environmental credit when it is probable (generally interpreted to be likelihood > 75%) that the environmental credit will be:

• Used to settle an environmental credit obligation; or
• Transferred in an exchange transaction; or
• Used in a nonreciprocal transfer.

All other environmental credits should be expensed as incurred (e.g., credits acquired to satisfy a voluntary emission initiative).

Initial Measurement: If an entity acquired the environmental credit in a transaction that is covered from another Topic (e.g., received as consideration from a customer under ASC 606), then the initial measurement should be determined from that Topic. Otherwise, an entity is required to measure an environmental credit at cost. Entities can acquire environmental credits in a number of different ways, including but not limited to:

• Acquiring in an exchange transaction (e.g., purchasing carbon offsets from a project developer, registry marketplace, etc.); or
• Receiving environmental credits through a grant; or
• Internally generating environmental credits (e.g., generating a kilowatt of clean energy); or
• Receiving environmental credits in a nonreciprocal transfer that is not a grant (e.g., contribution from an investee).

The cost of acquiring an environmental credit might not be straightforward. For example:

Subsequent Measurement: “It depends”

• “Compliance” Credits: If the entity is probable of using the credit to settle an environmental credit obligation, then subsequently measured at cost and not tested for impairment; or
• “Noncompliance” Credits:
  • If the entity is not probable to use to settle an environmental credit obligation, then subsequently measured at cost and is tested for impairment at each reporting date. Impairment is recognized when the carrying value exceeds fair value. Subsequent reversal of an impairment is prohibited.
  • Alternatively, if the noncompliance credit was acquired through one of three sources (i.e., exchange transaction,  nonreciprocal transferthat is not a grant, or a business combination), then the entity may elect to account for the credit at fair value. Said differently, internally generated environmental credits and environmental credits received through a grant from a regulator or its designee are not eligible for the fair value measurement election, even if they are noncompliance environmental credits. Interestingly, if an entity validly elects fair value for an eligible class of noncompliance environmental credits, then those credits continue to be measured at fair value until derecognition, even if some or all are later reclassified as compliance environmental credits because they become probable of being used to settle environmental credit obligations.   

Environmental Credit Obligations (Liabilities)

Recognition: An entity is required to recognize an environmental credit obligation liability when events (e.g., emissions) occurring on or before the reporting date result in an environmental credit obligation. Importantly, often regulatory requirements have a compliance period that might not align with the entity’s reporting periods. For example, some regulatory requirements have a multi-year compliance period or might not end on a calendar year-end. The Update states that the entity should use facts and circumstances existing at the reporting date and should not forecast future activities or events that may increase, reduce, or eliminate the credits ultimately due at settlement. For example, if an annual regulatory emissions program requires one credit for each metric ton of emissions above 1,000,000 metric tons and at June 30 the entity has emitted 750,000 metric tons and expects to emit another 750,000 metric tons by year-end, the entity would not recognize a liability at June 30. An environmental credit obligation liability should be derecognized when an entity remits the necessary environmental credits to a regulator.

Initial & Subsequent Measurement: An entity is required to initially and subsequently measure an environmental credit obligation liability at each reporting date using the carrying amount of the compliance environmental credits that the entity holds and expects to use to settle that obligation. This is referred to as the “funded portion”. If an entity has insufficient compliance environmental credits at the reporting date to satisfy the liability, then that “unfunded portion” should be initially and subsequently measured at the fair value, with certain exceptions. 

Presentation and Disclosure

Presentation: Offsetting environmental credits and environmental credit obligations is prohibited. In addition, both should be classified as short-term or long-term. For environmental credits, the classification is determined based on when the credit is expected to be transferred, used, or remitted. Conversely, for environmental credit obligations, the classification is determined based on when the obligation is expected to be settled.

Disclosures: For annual periods only, the below must be disclosed. For interim periods, only ASC 270’s general interim disclosure requirements apply (e.g., material events and changes rather than repeating full annual disclosures).

Environmental Credits:

• Types of environmental credits owned by the entity; 
• How the entity obtained those credits;
• How the entity intends to use the credits (e.g., to settle environmental credit obligations or to meet voluntary initiatives)
• Costing methods used (e.g., avg. cost, FIFO, specific identification, etc.);
• Significant estimates and judgments used;
• Total expense recognized for environmental credits that were not initially recognized as an asset or subsequently derecognized and the income statement line item(s) that include the expense (e.g., credits purchased and intended to satisfy a voluntary initiative); 
• Total impairment expense recognized, the nature of the impaired credits, the facts and circumstances giving rise to the impairment; and the income statement line item(s) that include the impairment; 
• If the entity changes its use or intended use of environmental credits, then the nature of the change and the related effect on earnings, if any. 

Environmental Credit Obligations:

• Activities or events that result in environmental credit obligations, including the nature and timing of settlement provisions;
• How the unfunded portion of an environmental credit obligation was measured;
• Significant estimates and judgments used;
• Funded vs. unfunded portion of environmental credit obligations and the balance sheet line items that include those amounts 
• Total expense recognized for environmental credit obligation liabilities during the reporting period and the income statement line item that includes that amount

Effective Dates and Transition Method

Effective Dates:

 Early adoption is permitted.

Transition Method: Modified retrospective approach (i.e., retrospective adoption through a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period of adoption.

ASU 2026-01

Initial Measurement of Paid-in-Kind Dividends on Equity-classified Preferred Stock

Background

Preferred stock often carries cumulative dividend features that can significantly affect an issuer’s equity presentation and earnings-per-share calculations. Frequently, the terms of preferred stock require or permit Paid-in-Kind (PIK) dividends (i.e., issuance of additional preferred stock or increase in liquidation preference). Extant standards did not address how an issuer should initially measure PIK dividends on equity-classified preferred stock. For example, some entities measured PIK dividends at the fair value of the preferred shares on the date accrued. This approach could diverge meaningfully from the stated liquidation value, particularly for preferred stock trading at a premium or discount to its stated terms, or where conversion features, redemption assumptions, or other embedded terms affected the fair value estimate. Other entities would should the entity record the PIK dividend rate? Other entities measured PIK dividends based on the rate stated in the preferred stock agreement, applied to the liquidation value of the shares outstanding (e.g., an 8% PIK rate times the liquidation preference). Other entities would bifurcate between discretionary vs. nondiscretionary PIK features. This Update provides authoritative guidance on how to initially measure PIK dividends on equity-classified preferred stock.

Changes

The amendments in this Update require that PIK dividends on equity-classified preferred stock be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement. For example, if the preferred stock agreement specifies that PIK dividends are calculated by multiplying the PIK dividend rate by the liquidation value of the preferred stock outstanding, an entity should initially measure the PIK dividend at that amount.

Effective Dates and Transition Methods

Effective Dates: Effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted.

 Transition Methods: An entity is permitted to apply the amendments in this Update either:

(1) on a prospective basis; or

(2) on a modified retrospective basis. Under the modified retrospective transition approach, an issuer should recast prior reporting periods presented and recognize a cumulative-effect adjustment to equity as of the beginning of the earliest period presented.

List of Newly Effective Standards

June 30, 2026 Year-end Governmental Entities

The following GASB statements are effective for governmental entities for fiscal year-end June 30, 2026:

• GASB Statement No. 103: Financial Reporting Model Improvements
• GASB Statement No. 104: Disclosure of Certain Capital Assets Held for Sale
• GASB Implementation Guide 2025‑1 (FN 1)

December 31, 2026 Year-end Public Business Entities

The following FASB statements are effective for public business entities for fiscal year-end December 31, 2026:

• ASU 2024-04: Induced conversions of convertible debt instruments
• ASU 2025-05: Measurement of credit losses for accounts receivable and contract assets

December 31, 2026 Year-end Private Entities

The following FASB statements are effective for private entities for fiscal year-end December 31, 2026:

• ASU 2023-09: Improvements to Income Tax Disclosures
• ASU 2024-01: Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards
• ASU 2024-04: Induced conversions of convertible debt instruments
• ASU 2025-05: Measurement of credit losses for accounts receivable and contract assets

December 31, 2026 Year-end Governmental Entities

The following GASB statements are effective for governmental entities for fiscal year-end December 31, 2026:

• GASB Statement No. 103: Financial Reporting Model Improvements
• GASB Statement No. 104: Disclosure of Certain Capital Assets Held for Sale
• GASB Implementation Guide 2025‑1 (FN 1)

_{FN 1: Questions 4.1–4.15, 5.1, and 5.2 in and the supersession of Question 2.18.2 are effective for fiscal years beginning after 8 June 15, 2025, and all reporting periods thereafter.}