07 Jan 2026 Key Credit Loss Changes Every Business Should Know Going Into 2026
Authored by: Brennan Ray
Changes to accounting standards do not always make headlines, but some deserve close attention. The Financial Accounting Standards Board has issued ASU 2025 05, a meaningful update that changes how businesses measure credit losses on accounts receivable and contract assets. These changes may impact the timing of loss recognition, allowance methodologies, and overall financial reporting, making early awareness and preparation essential as we enter 2026.
Who This if For
This article is designed for business owners, CFOs, controllers, and finance leaders responsible for financial reporting, receivables management, and compliance with U.S. GAAP.
Why This Matters
Credit losses directly impact reported earnings, cash flow expectations, and the transparency of financial statements. ASU 2025 05 expands how organizations estimate expected credit losses, requiring a broader view of economic conditions and future expectations. For many businesses, this may result in earlier recognition of losses and updates to long-standing allowance practices. Understanding these changes now can help avoid surprises at adoption and support smoother financial reporting.
Key Considerations for Credit Loss Accounting Going Into 2026
What’s Changing
Under ASU 2025 05, businesses will estimate expected credit losses using a wider range of information, including:
• Historical loss experience
• Current economic conditions
• Reasonable and supportable expectations about future conditions
This approach aligns loss recognition more closely with evolving economic realities rather than relying primarily on past experience alone.
Important Simplifications for Private Companies
The update introduces several practical relief options for private companies, including:
• A practical expedient for short-term receivables, allowing businesses to measure credit losses assuming economic conditions remain unchanged as of the balance sheet date
• A new accounting policy election permitting consideration of collections received after year-end when estimating expected credit losses
These simplifications are intended to reduce complexity while still providing meaningful financial information.
When Does It Apply
• Effective for fiscal years beginning after December 15, 2025
• Early adoption is permitted, allowing businesses to align implementation with internal readiness or strategic timing
How to Prepare Now
To prepare for adoption, businesses should begin reviewing:
• Existing allowance for credit loss methodologies
• The impact of current economic trends such as inflation, interest rates, and unemployment
• Documentation supporting management’s assumptions, expectations, and judgments
Early planning allows time to refine processes, evaluate policy elections, and ensure consistency in application.
Looking Ahead
Credit loss accounting will continue to evolve as economic conditions change and regulatory expectations mature. Organizations that proactively assess their methodologies and documentation will be better positioned to adopt ASU 2025 05 efficiently and confidently.
How Haynie Supports Clients
Haynie works closely with businesses to evaluate how new accounting standards impact financial reporting and operational processes. From assessing allowance methodologies to documenting assumptions and guiding implementation decisions, our team provides practical, tailored support to help organizations navigate change with clarity and confidence.
Common Questions About ASU 2025 05
What Is the Biggest Change Introduced by ASU 2025 05
The most significant change is the expanded requirement to consider future economic expectations along with historical and current data when estimating expected credit losses. This may result in earlier recognition of losses for some businesses.
Do These Changes Affect All Businesses
ASU 2025 05 applies to entities with accounts receivable or contract assets subject to credit loss estimation. Private companies benefit from additional simplifications; however, all affected businesses should assess the impact on their financial statements.
Should Businesses Consider Early Adoption
Early adoption may be beneficial for organizations that want to align their accounting policies sooner or minimize the complexity of the transition. The decision should be evaluated based on readiness, data availability, and overall financial reporting strategy.
Final Thoughts
ASU 2025 05 represents an important shift in how businesses think about and measure credit risk. While the changes may require updates to methodologies and documentation, early preparation can make implementation far more manageable. If you have questions about how these updates apply to your organization, we encourage you to contact your Haynie team to discuss next steps.