When the Current Expected Credit Losses (CECL) model took effect, many nonprofit finance teams found themselves doing more work than the risk in their receivables seemed to justify. Estimating “expected credit losses” often meant building forward-looking economic forecasts — even for short-term balances like tuition, membership dues or government reimbursements.
For many organizations, that effort felt disproportionate.
In response to that feedback, the Financial Accounting Standards Board (FASB) issued ASU 2025-05, introducing practical changes designed to simplify how nonprofits apply CECL — particularly for receivables tied to ASC 606 revenue.
Here’s what changed and why it matters.
Two Key Updates to Know
1. A simpler approach for short-term receivables
ASU 2025-05 introduces a practical expedient that allows organizations to assume that conditions at the balance sheet date remain unchanged over the life of the asset.
What this means in practice — you no longer need to build and support forward-looking economic forecasts for many short-term receivables. Instead, you can base your estimate on current conditions and historical experience.
For nonprofits with relatively quick collection cycles, this can significantly reduce the time and complexity of CECL calculations.
2. Flexibility to consider collections after year-end
Nonpublic entities — including most nonprofits — can now make an accounting policy election to consider subsequent collections when estimating expected credit losses.
In practical terms, if a receivable outstanding at year-end is collected before the financial statements are issued, you can factor that into your estimate — and potentially avoid recording an unnecessary allowance.
This change helps align reported estimates more closely with actual results.
Why This Matters for Nonprofits
For many organizations, receivables portfolios are made up of relatively low-risk, short-term balances, such as:
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Program service fees
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Tuition and student receivables
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Membership dues
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Government reimbursements
Under the original CECL guidance, these balances often required extensive documentation and forecasting — even when historical losses were minimal.
ASU 2025-05 helps right-size that effort by:
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Reducing modeling complexity for short-term receivables
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Lowering compliance costs and administrative burden
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Improving the relevance of estimates, especially when collections occur shortly after year-end
For nonprofits with strong collection histories, the allowance for credit losses may also decrease, providing a clearer picture of financial position.
What to Do Before Your 2026 Close
To take advantage of the updated guidance, consider these action steps:
Evaluate your options
Decide whether to apply:
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The practical expedient for current conditions, and
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The policy election to include subsequent collections
Be sure your approach is appropriate based on your receivables profile.
Document your decisions
As with any accounting policy election, consistency matters. Clearly document your choices and rationale to support the year-over-year application.
Review disclosure requirements
If you elect to consider subsequent collections, you’ll need to disclose the date through which those collections were evaluated.
Confirm eligibility
The subsequent collections policy is not available to nonprofits that:
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Are conduit bond obligors, or
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Have publicly traded securities
A Step In the Right Direction
ASU 2025-05 reflects a broader trend — FASB is listening to the nonprofit community and refining standards to better align with operational realities and risk.
For finance leaders and audit committees, it’s a reminder that estimates should be practical, supportable and proportional — not overly complex for the sake of compliance.
Need Help?
If you have questions about how these changes apply to your organization, or want help evaluating your CECL approach, our team is here to help. Contact us online or call 800.899.4623.
