The latest update is Accounting Standards Update (ASU) No. 2025-12, Codification Improvements. This update is part of FASB’s ongoing “evergreen” project. The goal of this project is to make GAAP easier to understand and apply. Instead of creating brand-new accounting models, it focuses on smaller fixes, technical corrections, and clarifications based on feedback from companies and auditors. These changes help reduce confusion and differences in how companies apply the rules.
ASU 2025-12 addresses 33 separate issues. Even so, its impact should not be ignored. This article highlights five of the most important changes. Together, they show the main themes of the update: improving earnings per share (EPS) calculations, formally allowing common treasury stock practices, clarifying how receivable sales are treated, reducing unnecessary lease disclosures, and fixing a technical issue in credit loss accounting.
Key Takeaway 1: Diluted EPS in a Loss Period Just Got More Complicated (and More Accurate)
The Old Assumption for Diluted EPS in a Loss Period Is No Longer Safe
Many companies have assumed that if they report a loss from continuing operations, all potential common shares are automatically anti-dilutive. This made diluted EPS easy to calculate, because diluted EPS would equal basic EPS in a loss period.
ASU 2025-12 changes this assumption. Under Issue 4, companies must now look more closely at contracts that can be settled in either stock or cash and are recorded as assets or liabilities. Companies must evaluate how these contracts affect both the numerator and denominator of diluted EPS. The numerator must be adjusted to reflect how income or loss would change if the contract were treated as equity instead. Even when a company reports a loss, these combined adjustments could still be dilutive.
This clarification fixes a major area where companies were doing things differently. The change must be applied retrospectively to all periods presented. That means prior EPS figures may need to be restated. This can affect trend analysis, investor communications, and key performance measures. Companies with earnings that move between profits and losses will likely need to update their EPS models, and analysts may be surprised by revised historical EPS numbers.
Key Takeaway 2: That Common Treasury Stock Method? It’s Officially in the Codification
A Popular Treasury Stock Method Finally Gets Its Place in GAAP
Before this update, GAAP allowed two ways to account for the excess of the repurchase price over par value when retiring treasury stock. Companies could either split the excess between additional paid-in capital (APIC) and retained earnings, or charge the entire amount to retained earnings.
ASU 2025-12, under Issue 10, officially adds a third option that many companies were already using in practice. Companies may now deduct the entire excess repurchase price from APIC. However, this method cannot be used if it would cause APIC to become negative.
This change aligns GAAP with common practice. It makes the guidance clearer and removes uncertainty about whether this method is allowed. Importantly, it does not change the basic accounting outcome, but it does simplify decision-making for preparers.
Key Takeaway 3: Selling Customer Receivables? FASB Clarifies the Rules
Clearing Up the Confusion on Transfers of Customer Receivables
There has been confusion about how to account for the sale of customer receivables recorded under revenue guidance, especially when the receivable is recognized before a good or service is delivered. Companies were unsure whether these transfers should be treated as sales of financial assets or as loans secured by receivables.
ASU 2025-12 resolves this issue in Issue 20. It clarifies that when a receivable recognized under revenue guidance meets the definition of a financial asset, its transfer must follow the rules for transfers and derecognition of financial assets.
This clarification is especially important for industries such as software-as-a-service and construction, where companies often record receivables before delivering services. Applying the same transfer guidance improves consistency and determines whether these transactions appear on the balance sheet as sales or secured borrowings. This improves comparability across companies.
Key Takeaway 4: A Welcome Break on Lease Receivable Disclosures
Fewer Disclosures for Certain Lease Receivables
Earlier guidance on troubled debt restructurings added new disclosure requirements for loan refinancings and restructurings involving borrowers in financial difficulty. Because lease receivables are considered financing receivables, some companies were concerned these extra disclosures would apply to leases as well.
ASU 2025-12 addresses this concern in Issue 5. It clearly states that lease receivables from sales-type or direct financing leases are excluded from these enhanced disclosure requirements.
This change reduces reporting effort for lessors. It reflects FASB’s intent to keep disclosures useful without adding unnecessary complexity or requiring information that was not originally intended.
Key Takeaway 5: Fixing a Potential “Double Count” on Credit Losses
A Subtle but Important Tweak to Beneficial Interests
Earlier guidance on beneficial interests did not clearly explain whether the allowance for credit losses should be included when calculating the reference amount. This created a risk that credit losses could be counted twice: once through the allowance and again through lower interest income.
ASU 2025-12 fixes this issue in Issue 6. It clarifies that the reference amount must be reduced by the allowance for credit losses.
This technical correction improves how interest income is measured. It prevents credit losses from being overstated and helps ensure financial results are more accurate.
Conclusion: Small Changes, Important Implications
ASU 2025-12 may be described as a set of improvements rather than a major new standard, but its effects are meaningful. It requires more precise EPS calculations during loss periods, formally allows common treasury stock practices, and removes unnecessary complexity in other areas. The EPS change must be applied retrospectively, while other changes allow either prospective or retrospective adoption.
Bob Michaels, Technical Accounting Lead at CrossCountry Consulting, summarized the intent of the update well:
“The FASB’s Evergreen Codification Improvements are clarifications rather than new requirements, meant to clean up and simplify U.S. GAAP without changing the underlying accounting models... These refinements reduce ambiguity and improve comparability.”
For annual periods beginning after December 15, 2026, companies should assess which of these changes will require updates to their accounting processes and internal controls.
Citation
Source: FASB Accounting Standards Update No. 2025-12, Codification Improvements.