FASB issues codification improvements

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-12, Codification Improvements.

The ASU was issued as part of the technical agenda project to address technical corrections, unintended application of the codification, clarifications, and other minor improvements.

The amendments are effective for all entities for annual reporting periods beginning after Dec. 15, 2026. Early adoption is permitted.

FASB codification improvements key provisions

The amendments address 33 specific issues across a broad range of topics, including but not limited to:

• Topic 260, Earnings Per Share: When an entity has a loss from continuing operations and a contract that may be settled in stock or cash that’s reported as an asset or liability, the amendments require the entity to consider whether including the potential common shares has a dilutive effect on the diluted earnings per share computation by evaluating the combined effect of the adjustments to the numerator and the denominator.
• Topic 842, Leases: The amendments clarify that lease receivables arising from sales-type or direct financing leases are excluded from the enhanced disclosure requirements introduced by ASU 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.
• Topic 505, Equity: The amendments explicitly permit a third method for accounting for treasury stock retirements, where the excess of the repurchase price over par or stated value is deducted from additional paid-in capital (APIC), provided APIC doesn’t become negative.
• Topic 860, Transfers and Servicing: The amendments clarify that the transfer of receivables that represent an unconditional right to payment in accordance with Topic 606, Revenue from Contracts with Customers, and that meet the definition of a financial asset are subject to Topic 860, rather than Topic 470, Debt.

Effective dates

The amendments aren’t intended to result in significant changes for most entities.

However, the FASB recognizes that changes to guidance may result in accounting changes for some entities.

So, the amendments are effective for all entities for annual reporting periods beginning after Dec. 15, 2026, and interim reporting periods within those annual reporting periods.

Early adoption is permitted. An entity may elect to early adopt the amendments on an issue-by-issue basis.

Transition requirements

The amendments to Topic 260 should be applied retrospectively to each prior reporting period presented in the period of adoption.

All other amendments should be applied using one of the following transition methods:

• Prospectively to transactions recognized on or after the date that the entity first applies the amendments.
• Retrospectively to the beginning of the earliest comparative period presented.

An entity may elect the transition method on an issue-by-issue basis.