FASB Proposes Codification Updates

The FASB has recently issued a proposal for a codification update, and it’s time for our annual look at these technical improvements. As Melisa Galasso explains, codification improvements are a regular occurrence, typically at least one per year, and are designed to address small, often overlooked inconsistencies or minor errors in the accounting standards. Think of it as collecting little notes about issues that aren’t urgent enough to tackle individually; when enough accumulate, the FASB takes action to clean up GAAP.

This latest update, issued on September 2, 2026, is part of what Melisa Galasso describes as an evergreen project, an ongoing effort to keep the codification clear and consistent. Stakeholders, accountants, auditors, and other users, can submit suggestions whenever they notice something unclear, inconsistent, or in need of technical correction. The issues addressed here are typically minor, such as correcting terminology, fixing links, or clarifying application guidance. The current proposal encompasses 21 unrelated issues, a testament to the FASB’s commitment to ongoing improvement.

While not every detail can be covered in a single blog, Melisa Galasso highlights several important clarifications included in the proposal. First, there’s a clarification regarding CECL, specifically, the scope of the practical expedient and accounting policy election when developing credit loss estimates. Stakeholders sought guidance on whether these options applied to receivables and contract assets acquired in different types of transactions, including those under business combinations and transfers of assets. The update confirms that the practical expedient and accounting policy election do apply, regardless of whether the assets were originated or acquired by the entity.

Another clarification addresses Rabbi Trusts within compensation guidance. Questions had arisen about whether such trusts need to be evaluated as variable interest entities (VIEs) and which standards apply. The update makes it clear that if a Rabbi Trust is not a VIE, traditional compensation guidance applies—but if it qualifies as a VIE, entities must follow the relevant VIE guidance, including disclosure requirements.

A third area of clarification involves share-based payment awards. Specifically, the proposal clarifies that the recognition and measurement guidance in Topic 718 should be applied to non-vested awards, even if the grantee is no longer an employee, up until the point the award vests and the employment relationship has ended. This brings much-needed clarity for practitioners dealing with modifications to such awards after an employee has left the company.

Lastly, the proposal addresses an outdated diagram in Topic 815, which relates to determining whether a freestanding contract falls within a specific scope. The diagram will be updated to reflect recently issued guidance, ensuring it remains accurate and useful. Additionally, a reference will be added to clarify an exception relevant to certain market risk benefits derivatives.

Although these changes may seem minor, they’re essential for maintaining codification accuracy. As Melisa notes, GAAP is the only authoritative resource for accounting practice, so even small inconsistencies warrant attention. The comment period for this round of improvements is open until November 19th, and the proposal itself is a manageable read for those interested in the finer points of the updates.

Staying up to date with these regular improvements not only helps practitioners avoid technical pitfalls but also reinforces a commitment to clarity and precision in financial reporting. For those seeking more in-depth discussion or to provide input, now’s the time to get involved. Stay tuned for further updates and, as always, happy learning!