Accounting, Reporting, and Compliance Hub (ARCH)

Clarifying diluted EPS calculation when a loss from continuing operations exists

• ASU 2025-12 clarifies guidance in Accounting Standards Codification (ASC) 260, Earnings Per Share, on calculating diluted EPS when an entity reports a loss from continuing operations and has a contract (recorded as an asset or liability) that may be settled in stock or cash. 
• In that situation, an entity must adjust the numerator for any gain or loss as if the contract were classified as equity and determine whether the combined numerator adjustment and potential common shares are dilutive. An entity cannot assume that all potential shares are antidilutive because the entity reports a loss from continuing operations.
• ASU 2025-12 also clarifies that potentially dilutive shares excluded from quarterly computations due to losses are included in year-to-date diluted EPS on a weighted-average basis if the combined effect of numerator and denominator adjustments is dilutive. 

Clarifying disclosure requirements for lease receivables from sale type or direct financing leases

• ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures, enhanced disclosure requirements about refinancing and restructuring loans to borrowers experiencing financial difficulty. These requirements apply to receivables within the scope of ASC 310, Receivables, including financing receivables.
• ASU 2025-12 clarifies that lease receivables from sales-type or direct financing leases are excluded from the enhanced disclosures required by ASU 2022-02.

Revising the calculation of the reference amount for beneficial interests

• Previously, ASC 325-40-35-4B did not specify whether the allowance for credit losses is included when calculating the reference amount for beneficial interests, which affects accretable yield and interest income recognition. This lack of clarity raised concerns about potential double counting of credit losses.
• ASU 2025-12 clarifies that the reference amount for beneficial interests is reduced by the allowance for credit losses and explains how interest income is recognized.

Clarifying methods to account for treasury stock retirements

• Previously, ASC 505-30-30-8 allowed two methods for accounting for any excess of repurchase price over par or stated value when treasury shares are retired or constructively retired:
  • Allocate the excess between additional paid-in-capital (APIC) and retained earnings.
  • Charge the excess entirely to retained earnings.
• A third method, deducting the entire excess from APIC, was inadvertently excluded from ASC 505-30-30-8.
• ASU 2025-12 clarifies that deducting the entire excess from APIC is explicitly permitted, if this deduction does not cause APIC to become negative.

Clarifying the guidance for transfers of receivables from contracts with customers

• Under ASC 606, Revenue from Contracts with Customers, an entity may have an unconditional right to consideration from a customer that generates a receivable before the entity transfers control of a good or service to the customer.
• Diversity in practice arose over whether sales of such receivables constituted transfers of financial instruments in the scope of ASC 860, Transfers and Servicing, or sales of future revenues in the scope of ASC 470, Debt.
• ASU 2025-12 clarifies that the receivables meet the definition of a financial asset and therefore, transfers of such assets are in the scope of ASC 860.

• Permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance.
• If adopted in an interim period, apply as of the beginning of the annual reporting period that includes that interim period.
• An entity may early adopt ASU 2025-12 on an issue-by-issue basis.

• ASC 260 (Issue 4)
  • Apply amendments retrospectively to all prior reporting periods presented. 
  • Provide transition disclosures in accordance with ASC 250-10-50-1 in interim and annual periods, except for specific disclosures required by ASC 250-10-50-1(b)(2) and ASC 250-10-50-1(c).
• All other amendments:
  • Apply amendments prospectively or retrospectively, on an issue-by-issue basis.
  • Disclose the nature and reason for the change.
  • If retrospectively applied, provide specific transition disclosures.