Reviewing accounting standards updates for 2025

The final A&A Focus webcast of 2025 brought together timely technical updates, practical guidance for year-end reporting, and clear explanations of several new and forthcoming accounting standards. Hosted by Bob Durak and Andrew Merryman, the December program featured Julie Killian and Mike Cheng, who each continued their multi-month series on special-purpose frameworks and leases under FASB ASC Topic 842, and Jessica Boicourt discussing 2025 applicable accounting standards to remember.

Special-purpose frameworks in practice: Tax-basis accounting

Julie Killian, CPA, principal at Rehmann and chair of the AICPA Technical Issues Committee, returned to and opened the program, continuing her look at special-purpose frameworks with income tax-basis accounting. Compared with other special-purpose frameworks such as the cash basis, modified cash basis, or FRF for SMEs, the tax basis is often more intuitive for practitioners because it mirrors concepts embedded in the Internal Revenue Code. Still, as Killian emphasized, it remains an alternative framework — one that carries meaningful advantages for some small entities, but also important limitations when external reporting is involved.

Killian reminded viewers that the tax basis is primarily designed to align financial reporting with the information used to prepare an entity’s tax returns. For many small businesses, that alignment simplifies bookkeeping and eliminates the burden of maintaining both GAAP-oriented records and tax-oriented records. The approach works particularly well when the primary users of the financial statements are owners, managers, or others focused on cash flow and taxable income, rather than outside creditors or potential investors.

Killian discussed common situations in which tax basis offers clear practical advantages:

• Simplifies accounting by eliminating GAAP-to-tax conversion entries.
• Provides owners information tied directly to taxable income.
• May reduce cost and complexity for small businesses.
• Works well when there are no external reporting requirements.

She also clarified a common misconception: An entity does not need to actually file a tax return to use the tax basis. Rather, the financial statements simply follow the recognition and measurement rules in the tax code. This may include using cash or accrual methods permitted by the IRS or applying tax rules for depreciation or inventory that differ from GAAP.

Finally, Killian turned to where practitioners should exercise care. Killian cautioned that while the tax basis can be highly efficient internally, it is not always suitable for external reporting. Many lenders continue to require GAAP financials, and even when banks permit tax-basis statements, they often need additional explanation to understand how those statements differ from the GAAP models they typically rely on.

The most significant pitfalls include:

• External users may be unfamiliar with the tax basis.
• Financial results may not reflect economic activity as GAAP portrays it.
• Models used by lenders or vendors may not adjust easily to tax-basis data.
• Disclosures must be sufficient to avoid confusion or misinterpretation.

Killian addressed two important viewer questions during the program. First, she addressed a recurring question about considerations when tax-basis financials look almost identical to GAAP financials. In those situations, she encouraged preparers to step back and consider whether the entity may be better served by GAAP financial statements with departures, especially if external reporting could be needed in the future. She also cautioned that preparers should avoid accumulating so many departures that they drift into a “piecemeal opinion.” The goal is to provide a clear, understandable framework, not an improvised hybrid that obscures the nature of the reporting basis.

Lastly, Killan discussed terminology used when presenting tax-basis financial statements, namely, should line items use tax terminology or GAAP terminology? Killian recommended using familiar captions, such as “Depreciation,” “Accounts Receivable,” and “Inventory,” to avoid confusing readers. She encouraged viewers to provide additional clarity, when necessary, in the footnotes, rather than embedded into the financial statement headings themselves.

Year-end standards review: What’s effective for 2025 and 2026

Jessica Boicourt, CPA, director at KSM CPAs & Advisors and a member of the AICPA Technical Issues Committee, made her A&A Focus debut to walk through recent accounting standards, offering a practical and highly pragmatic discussion of the ASUs most relevant to Dec. 31, 2025, engagements and a look ahead to significant changes arriving in 2026. Her segment touched on those standards with broad impact, and she emphasized repeatedly that practitioners should not underestimate the cumulative effect of these updates, even when individual standards may appear narrow in scope.

Boicourt began with one of the most visible changes for private companies, FASB ASU 2023-08, Intangibles — Goodwill and Other — Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, which requires qualifying holdings to be measured at fair value with changes recorded in net income. She explained that this represents a significant shift away from the previous indefinite-lived intangible model and will alter both the balance sheet and the income statement presentation for entities with material crypto activity. While only a subset of private companies will be affected, she encouraged auditors to take a fresh look at client holdings, internal controls, and whether additional disclosures may be needed.

Turning next to joint venture formations and addressing FASB ASU 2023-05, Business Combinations — Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, Boicourt highlighted an area where terminology in practice often diverges from terminology in GAAP. Many arrangements are casually referred to as joint ventures, even though they do not meet the accounting definition. The new guidance brings clarity by requiring newly formed joint ventures that do meet the definition to recognize contributed assets and liabilities at fair value, including goodwill. She noted that although this resembles business combination accounting in many respects, it avoids designating an acquirer, which is a key conceptual difference. Importantly, she said, the guidance is prospective, and firms should plan in advance when they know a joint venture is being created.

Boicourt then addressed the final phase of reference rate reform, addressed by FASB in several ASUs beginning with FASB ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, reminding the audience that the relief framework connected to the LIBOR transition expires after Dec. 31, 2025. While most entities have already transitioned their contracts, any lingering LIBOR references must be resolved before year end to avoid unnecessary accounting complications.

Looking ahead to 2026, Boicourt described the new simplification of credit losses (CECL), provided in FASB ASU 2025-05, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets,as one of the most welcome developments for private companies. Under the available practical expedient, entities may assume that current conditions remain stable for the life of certain short-term receivables and may consider post–balance sheet collections when estimating expected credit losses. This change, she said, responds directly to concerns from private company stakeholders about the cost and complexity of CECL modeling. Many firms are expected to adopt early, particularly if collections data is readily available.

She concluded with brief reminders about forthcoming updates to income tax disclosures (FASB ASU 2023-09), profit interest awards (FASB ASU 2024-01), and induced conversions of convertible debt (FASB ASU 2024-04). Although these standards vary widely in relevance, she encouraged firms to understand the pending effective dates now, noting that year-end planning is always easier when practitioners identify applicable ASUs before the audit cycle begins.

Determining the lease term under FASB ASC 842

In the final guest segment, Mike Cheng, CPA, national professional practice partner at Frazier & Deeter and a member of the Private Company Council, continued his practical, example-driven series on accounting for leases by focusing on one of the most judgment-heavy components of lease accounting — determining the term of a lease. While the definition seems simple at a glance, Cheng noted that the real complexity lies in understanding how various contractual options, including renewals, terminations, and lessor-controlled provisions, may impact the accounting of the arrangement.

Cheng began by reviewing the structure of the lease-term definition. The starting point is the noncancellable period, representing the time during which neither party can walk away. After that, entities evaluate additional details of the agreement, examining renewal options the lessee is reasonably certain to exercise, termination options the lessee is reasonably certain not to exercise, and any periods the lessor controls, which must be included automatically. He emphasized that FASB ASC Topic 842 requires a holistic evaluation, not a checklist mentality. Economic conditions, operational considerations, and incentives or penalties can all influence whether a lessee is “reasonably certain” to stay in a space beyond the noncancellable term.

A key theme in Cheng’s discussion was economic compulsion. Even if a contract leaves the decision entirely to the lessee, certain facts may make the choice effectively predetermined. For example, when leaving a location would cause significant disruption or when leasehold improvements would be abandoned prematurely, an otherwise flexible option can become, in substance, a fixed extension of the lease.

To illustrate this, Cheng walked through several real-world scenarios, including one that generated considerable audience engagement: a month-to-month lease with a significant leasehold improvement. Many practitioners assume that a month-to-month arrangement automatically results in a one-month lease term. Cheng explained why this assumption can be dangerously misleading.

In his example, the lessee occupies space under a contract that renews each month unless either party gives 30 days’ notice. On paper, the lease appears fully cancellable. However, in the scenario, the lessee has invested in a substantial leasehold improvement expected to last 10 years. Economically, walking away after one month would mean forfeiting the entire value of that improvement. Cheng noted that while such an arrangement might seem unusual with an unrelated landlord, it is commonplace in related-party real estate structures.

Under FASB ASC Topic 842, the analysis focuses not on the form of the contract but on the likelihood of continued use. Here, the lessee clearly has both the ability and the economic incentive to continue occupying the space. The lessor, meanwhile, has the contractual power to maintain the arrangement. Taken together, these factors make it reasonably certain that the lessee will continue to renew the lease for as long as the improvement provides utility. Therefore, despite being labeled “month-to-month,” the lease term for accounting purposes becomes 10 years, not one month.

Cheng reminded practitioners that this, and the other examples he reviewed, are not edge cases and that they represent exactly the kinds of nuanced scenarios FASB ASC Topic 842 was designed to address. When auditors encounter flexible terms, they must look beyond the contract title and assess the economic reality driving the lessee’s decision-making.

AICPA members are encouraged to review Cheng’s entire segment, including his discussion of several additional example scenarios.

Previewing the 2026 season of A&A Focus

Durak closed by thanking viewers for their attendance during the 2025, and reminded viewers of the first 2026 broadcast, scheduled for Jan. 7. Scheduled guests for the 1 p.m. ET event include Danielle Supkis Cheek, CPA, senior vice president, AI, analytics, and assurance at Caseware, returning for additional discussion of the use of AI in accounting and assurance; Tom Groskopf, CPA, technical director of the AICPA’s Center for Plain English Accounting, providing insights on the impacts of tariffs; and newcomer Stephanie Otero, CPA, vice president–Small Firms Advocate at the AICPA, bringing her insights on what issues small firms are focusing on beginning the year.

AICPA members are encouraged to attend these monthly events and review the accompanying newsletters for more in-depth coverage of these critical topics. Members can access archives of past sessions at the A&A Focus Series webpage.

— Dave Arman, CPA, MBA, is senior manager–Audit Quality at the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.