The evolution of purchased loan accounting: from FAS 91 to the CECL transition

Michael W Brown

The accounting for purchased loans has undergone a number of changes under US generally accepted accounting principles (US GAAP) since the early 1990s. However, accounting for performing loans that have not experienced deterioration in credit quality has not changed significantly at all. The changes over the years have been centred around loans generally purchased at a discount that have suffered deterioration since origination as both the Financial Accounting Standards Board (FASB) and investors in these assets have grappled with income recognition practices. This chapter will provide some historical background on the accounting for purchased loans, before shifting the focus to the significant change in accounting for purchased credit-deteriorated (PCD) loans that occurs at CECL transition. A real-life example of the CECL transition and the related journal entries will be presented at the end of the chapter.


Under Statement of Financial Accounting Standards 91 (FAS 91) released by FASB in December 1986, all loans acquired in an acquisition were treated identically for accounting purposes. For loans purchased as a group, the purchaser had two options

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