The Financial Accounting Standards Board (FASB) issued three new Accounting Standard Updates (ASUs) in the third quarter of 2025. The Government Accounting Standards Board (GASB) issued no new GASB statements in the third quarter of 2025. The latest issue of the Rundown features a summary of the new standards issued in the third quarter of 2025. For summaries of standards issued in previous periods view our previous rundowns. In addition, we’ve got a comprehensive listing of all newly effective standards for calendar year-end December 31, 2025, broken down by public business entities, private entities and for June 30 and December 31 year-end governments.
Third Quarter 2025 Newly Issued Standards
The Current Expected Credit Losses (CECL) standard (ASU 2016-13) introduced the concept of applying “reasonable and supportable” forecasts when estimating expected credit losses for financial assets measured at amortized cost (e.g., loan receivable). Developing these forecasts requires identifying, analyzing and documenting historical, current, and forecasted macroeconomic data (e.g., unemployment rates, delinquency rates, etc.) and correlating credit losses. For financial institutions and entities with long-term financial assets, this made sense and provided value to financial statement users.
However, for entities with only short-term financial assets generated from contracts with customers under ASC 606 (e.g., accounts receivable and contract assets), this requirement became onerous and generally did not have a material effect on estimated credit losses due to the short-term nature of the assets. As a result, the FASB issued ASU 2025-05, which provides a practical expedient available to all entities, allowing them to assume that current macroeconomic conditions, as of the balance sheet date, will not change for the remaining life of the asset. This practical expedient is only available for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606 Revenue from Contracts with Customers.
In addition to the onerous cost and complexity of developing reasonable and supportable forecasts for current accounts receivable and current contract assets, many entities observed that these assets were collected prior to the release of the financial statements and could result in recording an allowance for amounts that were known to be collected. As a result, the FASB will also allow private entities to make a policy election to consider collection activity after the balance sheet date when estimating credit losses. This policy election is only available to private entities and is only available for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606 Revenue from Contracts with Customers.
Effective Date: This ASU is effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. However, early adoption is permitted in both interim and annual reporting periods, and we expect many entities to early adopt.
Transition Guidance: Importantly, entities that choose to adopt the practical expedient (all entities) or the policy election (private entities) after the effective date will need to perform a preferability assessment.
Accounting for Internal- Software
The extant standard on capitalizing internal-use software was developed in the late 90s, when software developers generally used the “waterfall” method of developing software, which involves significant upfront prescriptive planning, fixed requirements, and programming in conducted in a linear and sequential method. As such, the extant standard differentiated capitalization based on the “phase” of development (e.g., preliminary project stage, application development stage and post-implementation operation stage). A lot has changed since then, and software developers now generally use the “agile” method, with flexible planning conducted continuously as the project progresses, in evolving project requirements and prototyping, as well as programming conducted in an iterative and incremental method. Programming is conducted in “sprints,” which are one-to-four-week time periods during which the development team will complete a specific set of tasks that form building blocks for the larger overall application goal.
As a result, FASB issued ASU 2025-06, which better aligns the accounting guidance with how software is generally currently being developed. Gone are the different capitalization phases. Now, an entity is required to start capitalizing software costs when both of the following occur:
- Management has authorized and committed to funding the software project; and
- It’s probable that the project will be completed (referred to as the “probable-to-complete recognition threshold”).
Probable-to-complete recognition threshold: An entity is required to consider whether there is “significant development uncertainty” and should consider two factors in determining whether significant development uncertainty exists as follows:
- Does the software have technological innovations or novel, unique, or unproven functions or features, and, if so, has the uncertainty been resolved through coding and testing?
- Has the entity determined what it needs the software to do (e.g., functions or features)? For example, is the entity continuing to substantially revise the software’s significant performance requirements?
The FASB expects that capitalization of internal-use software costs will generally not change for most types of software under this update. However, for the development of software used to provide a cloud computing arrangement (CCA), the board expects that the amendments could result in a decrease in capitalization.
Website Development Costs: In addition to superseding the internal-use software guidance of ASC 350-40, this update also supersedes the website development costs guidance from ASC 350-50.
Notably, this update does not affect software costs subject to ASC 985-20, Software—Costs of Software to Be Sold, Leased, or Marketed (aka “external-use software”).
Disclosures: This update clarifies that the disclosure requirements of ASC 360- 10, Property, Plant, and Equipment, apply to capitalized internal-use software and the disclosure requirements of ASC 350-30, General Intangibles Other Than Goodwill, do not apply to capitalized internal-use software.
Effective Date: This ASU is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. However, early adoption is permitted at the beginning of an annual reporting period, and we expect many entities to early adopt.
Transition Guidance: An entity may choose any of the transition approaches (prospectively, retrospectively or modified retrospectively). Under the prospective transition approach, an entity should apply the new standard to cost incurred to develop internal-use software as of the beginning of the period of adoption. Under the modified transition approach, an entity should apply the new standard to cost incurred to develop internal-use software as of the beginning of the period of adoption, except for in-process projects that, as of the date of adoption, do not meet the capitalization requirements under the update but did meet the capitalization requirements under extant guidance. For those in-process projects, an entity should derecognize any capitalized costs through a cumulative-effect adjustment to the opening balance of retained earnings as of the date of adoption.
Derivatives Scope Refinements and Scope Clarification for Share-based, Noncash Consideration from a Customer in a Revenue Contract
Derivatives Scope Refinements
Derivative accounting can be onerous and costly because it is complex and requires an entity to record an asset or liability at fair value (aka “marked-to-market”), which generally requires the use of a valuation specialist. Barring explicit scope exceptions, if an instrument in whole or in part meets the definition of derivative (i.e., has an underlying or variable, notional amount, requires little initial investment, and provides for net settlement either explicitly or through a mechanism outside of the contract), then the instrument would have to be marked-to-market.
Applying these scope exceptions can be confusing, and hiring a valuation specialist can be costly while often providing little decision-useful information to financial statement users. This cost versus benefit imbalance sometimes arises when accounting for a contract under ASC 606 Revenue from Contracts with Customers or even when accounting for “earnouts” under ASC 805 Business Combinations. For example, if a contract contained bonus payments for achieving regulatory approval or an earnings target.
This update expands the scope exceptions to derivative accounting to exclude non-exchange-traded contracts with underlyings (i.e., variables) that are based on operations or activities specific to one of the parties to the contract and is expected to result in fewer contracts, or embedded features within those contracts, accounted for as derivatives.
However, the scope exception does not apply to:
- Variables (i.e., underlyings) based on a market rate, market price, or market index; or
- Variables (i.e., underlyings) based on the price or performance (e.g., event of default) of a financial asset or liability; or
- Contracts involving the issuer’s own equity; or
- Call and put options on debt instruments.
Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract
One could be forgiven for having a sense of déjà vu because in the second quarter of 2025, the FASB issued ASU 2025-04, which addressed share-based consideration payable to a customer. ASU 2025-07, however, addresses share-based consideration receivable from a customer.
Prior to ASU 2025-07, there was a lack of clarity and thus diversity in practice about which guidance to apply to share-based payments (e.g., warrants or shares) receivable from a customer in exchange for the transfer of goods or services accounted for under ASC 606. For example, if an entity received a warrant from a customer whose exercisability is contingent upon satisfaction of a performance obligation, it was unclear whether the warrant should be recognized immediately under ASC 321, Investments – Equity Securities, or if the instrument should not be recognized until the performance obligation is satisfied under ASC 606.
This update clarifies that an entity should apply the guidance in ASC 606 when there are share-based payments in exchange for the transfer of goods or services under ASC 606. However, once the entity has earned the share-based payment, and the entity’s right to receive or retain the instruments is unconditional, then the instruments would be accounted for under ASC 321 or ASC 815.
Effective Date: This ASU is effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. However, early adoption is permitted, and we expect many entities to early adopt.
Transition Guidance: An entity may choose to adopt the amendments prospectively to new contracts entered into on or after the date of adoption or on a modified retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption for contracts existing as of the period.
List of Newly Effective Standards
Calendar Year-end Public Companies
The following ASUs are effective for public companies for fiscal year-ends December 31, 2025:
- ASU 2018-12 (as amended by 2020-11): Targeted Improvements to the Accounting for Long-Duration Contracts FN1 FN2
- ASU 2022-05: Transition for Sold Contracts FN1 FN2
- ASU 2023-05: Recognition and Initial Measurement of Joint Ventures FN1
- ASU 2023-08: Accounting for and Disclosure of Crypto Assets FN1
- ASU 2023-09: Improvements to Income Tax Disclosures
- ASU 2024-01: Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards FN1
FN1 – Effective for smaller reporting companies (SRCs)
FN2 – Including interim periods within those fiscal years (e.g., Q1 2025 for calendar year end public entities)
Calendar Year-end Private Companies
The following ASUs are effective for private companies for fiscal year-ends December 31, 2025:
- ASU 2018-12 (as amended by 2020-11): Targeted Improvements to the Accounting for Long-Duration Contracts
- ASU 2022-05: Transition for Sold Contracts
- ASU 2023-02: Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
- ASU 2022-03: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
- ASU 2023-05: Recognition and Initial Measurement of Joint Ventures
- ASU 2023-08: Accounting for and Disclosure of Crypto Assets
Governmental Entities
As a reminder, the following GASB statement is effective for governmental entities for fiscal year-ends December 31, 2025:
