OCC Updates Bank Accounting Guidance for Purchased Loans, Grants and Software

The Office of the Comptroller of the Currency updated its principal accounting advisory for federally chartered banks on Friday, incorporating recent accounting-standard changes involving purchased loans, government grants and software developed for internal use.

The OCC said August 14 that the 2026 Bank Accounting Advisory Series, or BAAS, is intended to help national banks, federal savings associations and examiners apply accounting standards and regulatory reporting requirements consistently. The accompanying bulletin also says the guidance applies to federal branches and agencies of foreign banking organizations and rescinds the bulletin that transmitted the 2025 edition.

The update is primarily a technical accounting and supervision development rather than a change aimed directly at retail bank customers. The OCC emphasized that the BAAS is not a rule or regulation. Instead, it presents interpretations from the agency’s Office of the Chief Accountant on generally accepted accounting principles and regulatory guidance for the fact patterns covered in the publication.

Purchased-loan guidance reflects a new FASB credit-loss model

One of the largest changes involves acquired loans. The 2026 BAAS incorporates Financial Accounting Standards Board Update 2025-08, which expands the population of acquired financial assets that use the “gross-up” approach under the credit-loss standard in Topic 326.

Under the updated standard, purchased seasoned loans can qualify for that treatment even when they were acquired without credit deterioration. The OCC says purchased seasoned loans exclude credit cards and purchased credit-deteriorated loans. A loan can generally be considered seasoned when it is acquired in a business combination, or when it is purchased at least 90 days after origination and the purchaser was not involved in originating it.

The distinction matters because the gross-up approach changes how a bank initially records the purchased asset and its allowance for credit losses. Rather than treating the initial expected credit-loss allowance as an immediate charge in the same manner as some newly originated or newly purchased assets, the approach incorporates the allowance into the asset’s initial accounting basis. The BAAS adds a new question in its acquired-loans section addressing how management should determine whether a purchased loan meets the definition of a purchased seasoned loan.

FASB’s purchased-loan amendments are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods, with early adoption permitted. The OCC’s new edition therefore gives banks and examiners a supervisory accounting reference before the mandatory effective date arrives.

Government grants now have dedicated business-entity guidance

The second highlighted area is government grants. FASB issued Update 2025-10 in December 2025 to establish recognition, measurement and presentation requirements for government grants received by business entities. Before that update, U.S. GAAP did not provide a dedicated authoritative model covering those grants for for-profit companies, which resulted in businesses using other accounting guidance by analogy.

The 2026 BAAS updates its section on grants received by banks to reflect that change. For banks that have adopted the new standard, the OCC says government grant proceeds, including grants such as those from the Community Development Financial Institutions Fund, should generally be accounted for under Topic 832 for call-report purposes. Nongovernmental grants continue to be addressed separately under the contribution guidance discussed in the advisory series.

FASB’s government-grant standard requires a business entity to wait to recognize a grant until it is probable that the entity will comply with the grant’s conditions and that the grant will be received, along with satisfying the applicable recognition requirements for a grant related to an asset or to income. The standard is scheduled to become effective for public business entities for annual periods beginning after December 15, 2028, and one year later for other entities, while permitting early adoption.

That long transition period means the immediate significance of Friday’s OCC publication is largely preparatory. Banks that adopt early have an updated OCC interpretation to consult, while others can use the advisory series to plan accounting policies, call-report treatment and internal controls before the FASB requirements become mandatory.

Internal-use software guidance changes when capitalization begins

The third major update concerns software that a bank develops or obtains for its own internal use. The BAAS incorporates FASB Update 2025-06, which modernized the accounting model for internal-use software costs.

The older guidance described the software-development process using preliminary-project, application-development and post-implementation stages, with costs in the application-development stage generally capitalized and costs in the other two stages generally expensed. For banks that have adopted the newer standard, the OCC’s updated response instead focuses on two conditions for beginning capitalization: management must have authorized and committed funding for the project, and it must be probable that the project will be completed and the software used for its intended function.

The new model also tells banks not to capitalize costs when significant development uncertainty remains. The BAAS says that uncertainty may exist when software depends on novel or unproven functions or when significant performance requirements have not yet been identified or continue to be substantially revised. That makes management’s documentation around project approval, technical uncertainty and expected completion particularly relevant to the accounting conclusion.

The 2026 edition does more than revise these three subjects. In its introductory message, the Office of the Chief Accountant says the publication adds new questions on nonaccrual loans, grants received by banks and acquired loans. It also updates existing questions covering miscellaneous other assets, acquisitions, grants and several acquired-loan issues. The OCC says the annual review also produced minor edits and renumbering that do not change earlier conclusions or interpretations.

The advisory series reflects accounting standards and emerging issues observed through March 31, 2026. That cutoff is important because it defines the period considered in this edition rather than making the BAAS a continuously updated accounting manual.

For banks, the practical task is to identify which new FASB standards they have adopted or must prepare to adopt and align their accounting policies and regulatory reporting accordingly. The OCC’s Bulletin 2026-38 makes clear that the BAAS applies across the banks it supervises, while also preserving the distinction between supervisory accounting interpretations and legally binding OCC regulations.