The CECL standard has been one of the more demanding accounting changes private companies faced in recent years, largely because it asked every entity to forecast future economic conditions when estimating losses on something as routine as trade receivables. In July 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-05 to ease that burden for accounts receivable and contract assets. This article explains the two new options the update creates, who can use them, and how to apply them before the effective date arrives for periods beginning after December 15, 2025.
Quick answer: ASU 2025-05 gives all companies a practical expedient that lets them assume conditions at the balance sheet date stay constant for the remaining life of current accounts receivable and contract assets, removing the requirement to build a forward-looking economic forecast. Private companies (entities that are not public business entities) get a second, optional election to factor in cash actually collected after the balance sheet date but before the financial statements are issued, which can shrink the receivables balance still exposed to estimated credit losses.
Why the CECL Standard Needed Relief
When the current expected credit loss model in Topic 326 took effect, it replaced the old “incurred loss” approach with a forward-looking framework. Under the original CECL standard, an entity had to estimate lifetime expected losses using historical experience, current conditions, and a reasonable and supportable forecast of future conditions. For banks and lenders holding long-dated loans, the forecasting requirement made sense.
For a manufacturer or services firm with trade receivables that turn over in 30 to 60 days, the same requirement felt disproportionate. Building and documenting a macroeconomic forecast to estimate losses on receivables that would be collected within weeks added cost and subjectivity without materially improving the estimate. The FASB’s Private Company Council heard this feedback repeatedly and proposed targeted relief.
ASU 2025-05 is the result. It does not change the fundamental measurement objective of the CECL standard. Instead, it narrows the inputs an entity must consider for a specific, short-duration population of assets. If you want a refresher on how loss estimates flow through financial reporting, our audit and assurance services team works through these estimates with clients every reporting cycle.
The Current-Conditions Practical Expedient
The first and broadest change is the current-conditions practical expedient. An entity electing it assumes that the economic conditions existing as of the balance sheet date will not change over the remaining life of the asset. In plain terms, you no longer build a reasonable and supportable forecast for these assets; you freeze the present and carry it forward.
This expedient is available to all entities, public and private alike. It applies only to current accounts receivable and current contract assets that arise from transactions accounted for under Topic 606, the revenue recognition standard. “Current” is generally measured against a one-year horizon, unless your normal operating cycle is longer than a year, in which case the operating cycle governs.
It is important to understand what the expedient keeps and what it removes. You still use historical loss experience, and you still adjust for current conditions as of the balance sheet date. What you drop is the forward-looking forecast component that the original CECL standard required. That single change eliminates most of the documentation and modeling effort smaller finance teams found unworkable.
A company that elects the expedient must disclose that it has done so. The disclosure tells financial statement users that the loss estimate reflects current conditions held constant rather than a forecast of changing conditions, which is relevant context for interpreting the allowance.
The Subsequent-Collections Election for Private Companies
The second change is narrower and more powerful for the entities eligible to use it. An entity that is not a public business entity, and that has already elected the current-conditions practical expedient, may make an additional accounting policy election to consider cash collections that occur after the balance sheet date but before the financial statements are issued or available to be issued.
The logic is straightforward. If a customer pays after year-end but before you issue your statements, that payment is real evidence that the receivable was collectible. Rather than estimating a loss on an amount you have since collected, you can remove the collected portion from the population you measure for expected losses.
The Journal of Accountancy illustrates the mechanics with a clear example: a company holding $10 million in receivables at year-end that collects $7 million by the following February 28 would evaluate only the remaining $3 million for an expected loss allowance. The collected $7 million no longer carries credit risk, so it falls outside the estimate.
Two conditions are worth emphasizing. First, this election is gated: you cannot make it unless you have also elected the practical expedient. Second, it is limited to entities other than public business entities, which is why it is most relevant to privately held companies and many not-for-profits.
Entities making this election must disclose both the election itself and the date through which they considered subsequent collection activity. That cutoff date can change from year to year, but it must be disclosed each period so users understand how much post-balance-sheet information shaped the estimate.
Effective Date, Early Adoption, and Transition
ASU 2025-05 is effective for annual reporting periods beginning after December 15, 2025, and for interim reporting periods within those annual periods. For a calendar-year private company, that means the 2026 fiscal year.
Early adoption is permitted, including in an interim period, for financial statements that have not yet been issued or made available for issuance. A private company closing its 2025 books may therefore be able to apply the relief now, provided its statements are not yet out the door.
Transition is prospective. There is no cumulative-effect catch-up entry to the opening balance of retained earnings and no requirement to restate prior periods. You apply the elected approach going forward from the date of adoption, which keeps implementation administratively simple.
Because both options are elective, adopting them is a policy decision rather than a mandate. Companies should document the rationale, confirm the disclosures are in place, and coordinate the timing with their auditors. Our accounting and assurance professionals at Pease Bell can help evaluate whether electing one or both options is appropriate for your facts and how the disclosures should read.
Practical Steps Before Year-End
Start by identifying the population in scope. Only current accounts receivable and current contract assets from Topic 606 revenue transactions qualify, so segregate those balances from financing receivables, notes, and other instruments that remain under the full CECL standard.
Next, decide which option fits. Public business entities can use only the practical expedient. Private companies should weigh whether the subsequent-collections election would meaningfully reduce the measured balance, which depends on how quickly customers pay after period-end. A business that collects most receivables within weeks of year-end stands to benefit the most.
Finally, build the disclosures into your reporting template now rather than at the filing deadline. You will need language confirming the practical expedient election and, for private companies using the second option, the policy election and the collection cutoff date. Aligning these decisions with your audit timeline avoids last-minute rework.
Treat both options as deliberate policy choices rather than automatic adjustments. Because each election is optional and applied prospectively, a company can adopt the practical expedient on its own, pair it with the subsequent-collections election if it qualifies as a non-public business entity, or decline both and continue applying the full expected credit loss model. Documenting why you chose a given approach, and confirming that the required disclosures match that choice, gives both management and the auditor a clear record of the position taken for the period.
Frequently Asked Questions
Who can use the ASU 2025-05 practical expedient?
All entities, both public and private, may elect the current-conditions practical expedient for current accounts receivable and current contract assets arising from Topic 606 transactions. The expedient lets them assume conditions at the balance sheet date persist for the remaining life of the asset, removing the forward-looking forecast requirement of the CECL standard.
What is the subsequent-collections election and who qualifies?
It is an accounting policy election that lets an entity consider cash collected after the balance sheet date but before the financial statements are issued when estimating expected credit losses. Only entities that are not public business entities qualify, and only if they have also elected the current-conditions practical expedient.
When does ASU 2025-05 take effect?
The update is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted for financial statements that have not yet been issued or made available for issuance, and transition is applied prospectively.
Does ASU 2025-05 change the CECL standard for all financial assets?
No. The relief is scoped narrowly to current accounts receivable and current contract assets from revenue transactions under Topic 606. Loans, notes receivable, held-to-maturity debt securities, and other financial assets continue to follow the full expected credit loss model in Topic 326.
For the authoritative text, see the FASB’s update at storage.fasb.org/ASU 2025-05.pdf and the practitioner analysis from the Journal of Accountancy.
