New Accounting Standards Bankers Should Know

Introduction

An accounting standard rarely changes what a business is worth, but it can change almost every number used to describe it. When a rule moves an item from one line to another, from the balance sheet to the income statement, or from cost to fair value, the multiples, margins and growth rates built on those numbers move with it, and a comparison that ignores the change compares two different things.

The current wave of US standards has a clear theme. When the Financial Accounting Standards Board (FASB) consulted on its agenda in 2021, investors asked above all for more detail about what sits inside the aggregated figures companies report, and most of the standards issued since 2023 respond to that request, with more disclosure on segments, income taxes and expenses. Alongside them sit targeted changes that matter in specific situations bankers meet often: acquisitions of companies structured as partnerships, bank mergers, crypto holdings, software development, government grants and environmental credits.

Every annual and quarterly report includes a note on recently adopted and recently issued accounting pronouncements, usually within the summary of significant accounting policies. Securities and Exchange Commission (SEC) staff guidance asks companies to disclose standards that have been issued but not yet adopted and, where they can, the expected effect. The note is the quickest way to see what is coming for a specific company, and how much work the FASB's process, described in who sets accounting rules, will create for its reported figures.

How a standard is adopted matters as much as what it says. A retrospective adoption restates prior periods, so trends remain comparable. A prospective adoption applies only to transactions after the adoption date, so old and new accounting coexist. Many standards use a middle route:

Cumulative-effect adjustment

The adjustment to opening retained earnings that a company records when it adopts a new standard without restating prior periods. It captures the effect the new rule would have had on balances up to the adoption date, so the balance sheet reflects the new accounting at once, while earlier income statements stay as originally reported.

The treatment of these changes in general, including how they differ from corrections of errors, is covered in restatements and accounting changes. The main Accounting Standards Updates (ASUs) of the current cycle, with the first year they apply to a calendar-year public company, are:

Early adoption is permitted for all of them, which means peers can apply the same standard in different years, a recurring problem for comparisons.

Three disclosure standards form the core of the cycle. The first two are already in annual reports, and both give analysts information they previously had to estimate; the third arrives in 2027.

Segment Expenses

ASU 2023-07 requires public companies to disclose the significant segment expenses regularly provided to the chief operating decision maker, along with that person's title and how they use the segment profit measure, and it applies even to companies with a single segment. The result is a much fuller view of segment margins, the analysis set out in segment reporting. Companies may now disclose more than one measure of segment profit, provided one is the measure closest to generally accepted accounting principles (GAAP).

Income Tax Disclosures

ASU 2023-09 standardizes the rate reconciliation into defined categories, such as state taxes, foreign tax effects, tax credits and changes in valuation allowances, and requires separate disclosure of reconciling items above 5% of the tax at the statutory rate. It also requires income taxes paid to be split between federal, state and foreign, with any individual jurisdiction above 5% of the total shown separately. Alphabet's 2025 annual report, the first under the standard, shows $21.5 billion of income taxes paid, of which $13.7 billion was US federal, $2.9 billion state and local, and $1.4 billion in Brazil, the only foreign country large enough to be named. For anyone forecasting cash taxes, the disclosure is a direct check on the relationship described in effective, statutory and cash tax rates. The standardized reconciliation helps in the same way: because foreign tax effects must be shown by country once they pass the 5% threshold, an analyst can see which jurisdictions pull a company's rate below the 21% federal rate, and therefore which profits are exposed to changes such as the global minimum tax.

Expenses by Nature From 2027

The largest disclosure change arrives in 2027 annual reports, when ASU 2024-03 requires each major expense line to be broken down into purchases of inventory, employee compensation, depreciation and intangible amortization, together with total selling expenses. It is covered in detail in US expense disaggregation disclosures, and it will make earnings before interest, taxes, depreciation and amortization (EBITDA), labor costs and synergy estimates far easier to build from filings.

A smaller change affects quarterly reports. ASU 2025-11 reorganizes the interim reporting rules into a single list of required disclosures and adds a disclosure principle that companies disclose events since the last annual report that have a material effect, from 2028. For analysts, it should make quarterly notes more consistent, though it does not add new categories of figures.

Before 2025, US companies accounted for bitcoin and similar holdings as indefinite-lived intangible assets: carried at cost, written down when prices fell and never written back up when they recovered. ASU 2023-08 requires crypto assets within its scope to be measured at fair value, with changes recognized in net income each period, and it was adopted with a cumulative-effect adjustment rather than restatement. Its scope covers fungible tokens that sit on a blockchain, are secured by cryptography, give no enforceable rights to underlying goods, services or other assets and were not issued by the company holding them, so bitcoin and ether are in, while stablecoins redeemable for cash generally are not. Holdings are shown separately from other intangible assets on the balance sheet, and their remeasurement gains and losses separately from changes in other intangibles on the income statement.

Strategy, the largest corporate holder of bitcoin, shows the scale. Under the old rules it had recorded $4.06 billion of cumulative impairment on its holdings through 2024. On adoption on January 1, 2025, it increased its opening retained earnings by $12.75 billion, and in 2025 its reported results swung with the price of bitcoin: an unrealized loss of $5.91 billion in the first quarter, gains of $14.05 billion and $3.89 billion in the second and third, and a loss of $17.44 billion in the fourth, according to its 2025 annual report. For the full year, the unrealized loss of $5.40 billion, partly offset by a $1.55 billion deferred tax benefit, drove a net loss of $3.85 billion. The tax effect follows from the mismatch the standard creates: the tax basis of the holdings stays at cost, so fair value gains above cost create deferred tax liabilities and later losses reverse them. The broader treatment of assets carried at fair value is covered in historical cost vs fair value.

Several of the new standards change the accounting for transactions that bankers advise on, and the two that matter most in mergers, ASU 2025-03 and ASU 2025-08, apply prospectively, so deals closed before adoption keep the old answer.

Identifying the Acquirer When the Target Is a VIE

Under the old rules, when the legal target of a business combination was a variable interest entity (VIE), the party that became its primary beneficiary was always the accounting acquirer. That produced odd results in mergers with special purpose acquisition companies (SPACs) and in Up-C structures, where operating companies organized as limited liability companies or partnerships are often VIEs: the SPAC was forced to be the acquirer even when the target's owners controlled the combined company. For deals effected mainly through an exchange of equity interests, ASU 2025-03 requires companies to apply the general factors instead, such as relative voting rights, the composition of the board and senior management, and the relative size of the entities, so such deals can now be reverse acquisitions, the treatment described in reverse acquisitions and SPAC mergers. The difference decides whether the target's assets are stepped up to fair value and goodwill recognized, or carried over at historical cost.

Variable interest entity

An entity that is controlled through contractual or other arrangements rather than through voting equity, either because its equity is too small to finance its activities or because its equity holders lack the usual powers of ownership. The party with the power to direct its most significant activities and the exposure to its gains and losses, the primary beneficiary, consolidates it.

For bankers working on SPAC mergers and initial public offerings structured as Up-Cs, the change makes the accounting follow the economics of control more often, and it removes one reason the same deal could be accounted for differently depending on the target's legal form.

Purchased Loans in Bank Mergers

Under the current expected credit loss model, a bank that acquires loans without significant credit deterioration records them at fair value, which already reflects expected losses, and then records an allowance for those same expected losses through provision expense on the day the deal closes. Bankers call it the double count. Capital One's acquisition of Discover in May 2025 shows the size it can reach: the company recorded an initial allowance of $8.8 billion for acquired loans without credit deterioration, the main reason its provision for credit losses rose to $20.7 billion and, with higher operating expenses, its 2025 net income fell by $2.3 billion to $2.5 billion, as its 2025 annual report explains.

ASU 2025-08 applies this gross-up approach, previously limited to purchased credit-deteriorated loans, to purchased seasoned loans, which include all loans acquired in a business combination other than credit cards. The credit card exclusion matters: a deal built mainly on card balances, like Capital One's, would still produce a large day-one charge under the new rules. For other bank mergers, the change removes a distortion from earnings and, because the day-one provision reduced retained earnings, from capital at closing, which affects accretion and dilution analysis, as described in the bank financial statements primer.

Financing Instruments

Three narrower standards affect capital markets work. ASU 2024-04 clarifies when settling convertible debt on terms other than the original conversion terms is an induced conversion, which produces an expense for the inducement, rather than an extinguishment, which produces a gain or loss on the debt, a distinction that matters for the exchange offers common in convertible refinancings, covered in convertible debt accounting. ASU 2025-09 makes targeted improvements to hedge accounting, including which groups of forecasted transactions can be hedged together and how interest can be hedged on choose-your-rate debt, where the borrower can switch the rate index. And ASU 2026-01 sets a single method for measuring paid-in-kind dividends on equity-classified preferred stock, which affects the income available to common shareholders.

The final group changes what reaches the balance sheet, and with it EBITDA and asset values.

Internal-Use Software

ASU 2025-06 removes the project stages that governed the capitalization of software built for a company's own use. From 2028, capitalization begins when management has authorized and committed to funding a project and it is probable that the software will be completed and used as intended, after any significant development uncertainty is resolved. For companies building software in agile cycles, capitalized amounts may change, and because capitalized costs are amortized below EBITDA rather than expensed, the change can move EBITDA, the issue described in capitalizing vs expensing costs.

Government Grants

Until ASU 2025-10, US GAAP had no recognition model for government grants to businesses, which borrowed from International Financial Reporting Standards (IFRS) or from other guidance by analogy. The new rules, effective from 2029, recognize a grant when it is probable that the company will meet its conditions and receive it. Grants related to income are recognized over the periods in which the related costs are expensed, presented either as other income or as a reduction of those costs. For grants related to assets, such as funding for a new plant, companies choose between recording deferred income amortized over the asset's life and reducing the asset's cost, which lowers its later depreciation. Three of the seven board members dissented, arguing among other things that such choices preserve the existing diversity in practice, and analysts comparing capital-intensive peers will need to check which approach each uses. Tax credits accounted for as income taxes remain outside the standard.

In the meantime, practice varies. Intel, one of the largest recipients of CHIPS Act funding, recognizes government incentives, including cash grants and refundable tax credits, when there is reasonable assurance that it will receive them and meet their conditions, wording borrowed from IFRS, according to its 2025 annual report. It records capital-related incentives as a reduction of property, plant and equipment, which lowers its depreciation over the assets' lives, and operating incentives as a reduction of the related expense. Its adjusted free cash flow measure also nets incentive proceeds against capital expenditure. The policy now covers less of its CHIPS Act money than it once did: in August 2025, Intel received the remaining $5.7 billion of its award in exchange for issuing shares and warrants to the US government, which turned that funding from grants into an equity investment, while the $2.3 billion received earlier stayed under its grant policy. Under the new standard, a company that chooses the deferred income approach instead would report higher assets and depreciation, offset by grant income, for exactly the same plant.

Environmental Credits

ASU 2026-02 creates the first US model for environmental credits, such as emissions allowances and renewable fuel credits. Credits a company expects to use to settle a compliance obligation are recognized at cost and presented separately from the related obligation, without netting, while credits bought only for voluntary goals, such as net-zero commitments, are expensed. It applies from 2028, with a cumulative-effect adjustment, and will make the cost of compliance programs more consistent across refiners, utilities and manufacturers.

The practical work falls into three areas. First, comparability: for any peer group, check when each company adopted each standard and how, because early adopters and late adopters will report on different bases for a year or more, and prospective standards leave old and new accounting side by side. Second, models: historical series need adjusting where a standard changed the basis without restatement, as with crypto assets, and forecasts need the new treatment from the adoption year, as with purchased loans in a bank merger model. Third, documents: credit agreements and other contracts that define EBITDA or net income by reference to GAAP may freeze the accounting at signing or move with it, and a new standard can change covenant headroom without any change in the business. Leveraged credit agreements typically let either party ask to renegotiate a ratio affected by a change in GAAP, and until they agree the covenant is calculated as if the change had not happened, so a borrower may have to report two sets of figures.

IFRS reporters face their own transition, the move to IFRS 18 from 2027, covered in IFRS 18 and the new income statement, so a cross-border peer group can see several presentation changes in the same years.

The standards in this cycle are, for the most part, about seeing more rather than counting differently. By 2029, a US company's filings will show its segment costs, its taxes by country, its expenses by nature and its grants and environmental credits under defined rules. The analysts who benefit most will be those who capture the new detail as soon as it appears and keep track of which numbers changed basis along the way.