FASB Updates Accounting for Purchased Loans: What UAE Businesses Should Know

On November 12, 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-08, amending the accounting rules for certain acquired loans. The update introduces the so-called 'gross-up approach' for purchased seasoned loans, aligning their treatment with loans that have experienced credit deterioration since origination.

Under the new guidance, entities must recognize purchased seasoned loans (excluding credit cards) at their purchase price plus an allowance for expected credit losses. This change eliminates the immediate recognition of a credit loss expense at acquisition, which previously created confusion and reduced comparability. The gross-up approach now applies to loans acquired more than 90 days after origination, or those obtained in a business combination, provided the acquirer was not involved in the loan’s origination. The update also introduces a policy election for subsequent measurement of credit losses, allowing entities to use amortized cost basis instead of unpaid principal balance, which may simplify loss estimation and aggregation for similar risk assets.

What this means:
For UAE businesses involved in loan acquisitions or mergers, this update streamlines accounting processes and improves transparency. It reduces the risk of a first-day income dip and makes financial reporting more consistent. Companies should review their acquisition strategies and ensure systems can track loan origination and acquisition dates accurately. Early adoption is permitted, so firms planning acquisitions should consider updating their accounting models ahead of the mandatory 2027 effective date.