This Financial Reporting Update highlights key developments and issues that are relevant to Finance and Accounting Professionals.
Securities and Exchange Commission
Due to the government shutdown, effective October 1, 2025, the Securities and Exchange Commission (SEC), including its Division of Corporation Finance (DCF), has significantly limited its operations. The SEC will have a very limited number of staff members available to respond to emergency situations, mainly focusing on market integrity and investor protection. EDGAR will remain functional for filings, but the DCF will not accelerate the effectiveness of registration requirements. Registrants should monitor the SEC’s website for updates.
Financial Accounting Standards Board
The Financial Accounting Standards Board (FASB) has released ASU 2025-05, introducing welcome relief for companies struggling with the time and effort it takes to estimate credit losses on short-term receivables and contract assets. These changes aim to keep financial statements useful for investors while lightening the workload for preparers. For further details, please check out our blog post.
On September 19, 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-06, amending its guidance on accounting for internal-use software costs. The amendments in the new ASU apply to all entities subject to Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software. Under current GAAP, entities are required to capitalize development costs incurred for internal-use software depending on the nature of the costs and the stage of the project in which they occur. The amendments now require that an entity capitalize software costs when management has authorized and committed to funding the software project and when it is probable that the project will be completed and the software will be used to perform the function intended (the “probable-to-complete recognition threshold”). Under this threshold, entities are also required to consider whether there is significant uncertainty with the development activities of the software. All references to software development project stages have been removed from the guidance in order to include all modern software development methods that may not have project stages. This ASU will become effective for annual reporting periods beginning after December 15, 2027.
On September 30, 2025, the Financial Accounting Standards Board (FASB) published ASU 2025-07, responding to challenges in ASC Topic 815, Derivatives and Hedging and Topic 606, Revenue from Contracts with Customers. Topic 815 establishes accounting requirements for contracts that meet the definition of a derivative. However, many types of contracts are being evaluated and accounted for as derivatives since the definition of a derivative is very broad and has evolved in the changing business environment. The ASU addresses these stakeholders’ concerns by adding a derivative scope exception for certain contracts with underlying assets that are based on the operations or activities of one of the parties of the contract. The ASU aims to reduce the cost and complexity of evaluating whether these contracts are derivatives, better portray the economics of those contracts in the financial statements, and reduce diversity in practice resulting from the current broad application of the current guidance. Additionally, the ASU clarifies the applicability of Topic 606 and its interaction with Topic 815 and Topic 321, Investments – Equity Securities, in the accounting for share-based noncash consideration (such as warrants or shares) received from a customer for the transfer of goods or services. This provides investors with more comparable information and reduces accounting complexities and reporting costs for preparers and auditors. The ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those reporting periods, with early adoption permitted.
On September 30, 2025, the Financial Accounting Standards Board (FASB) announced that they are seeking public comment on a proposed ASU for ASC Topic 505, Equity. The proposed ASU would provide authoritative guidance on how an issuer should initially measure paid-in-kind (PIK) dividends on equity-classified preferred stock. Currently, GAAP does not address how an issuer should initially measure PIK dividends on equity-classified preferred stock, creating diversity in practice. This affects the measurement of equity-classified preferred stock on the statement of financial position as well as the amount of income available to common shareholders for entities that report earnings per share. Further, the current guidance reduces comparability of financial reporting information among entities that issue PIK dividends on equity-classified preferred stock. The proposed ASU would require that PIK dividends on equity-classified preferred stock be initially measured n the basis of the PIK dividend rate stated in the preferred stock agreement. Public comments on the proposed ASU are due by October 27, 2025.
American Institute of Certified Public Accountants
On July 3, 2025, the American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB) issued a proposed standard that aims to address auditors’ responsibilities relating to fraud. If this standard was to be issued, it would supersede SAS No. 122, Statements on Auditing Standards: Clarification and Recodification. The ASB’s belief is that the proposed SAS will help auditors to perform the proper audit procedures when fraud or suspected fraud is identified when auditing financial statements. The goal of the proposal is to push auditors to exercise professional skepticism in planning and performing their audits as well as encourage proactive, questioning mindsets across all phases of the audit. The new guidance would ask auditors to examine fraud in non-financial reporting areas, third-party fraud and collusion, and management bias in estimates and judgements. Auditors must look back at prior-period judgements and estimates to spot patterns that may reveal risk in the current period. If adopted, the new standard would take effect for audits of financial statements for periods ending on or after December 15th, 2028. Public comments on this proposed standard were due on October 3rd, 2025.