The FASB has issued a new Accounting Standards Update that responds to concerns from stakeholders about how derivatives guidance applies in practice and how share-based non-cash consideration from customers should be accounted for. 

The update focuses on two areas. First, it introduces a scope exception to Topic 815, Derivatives and Hedging, for certain contracts whose underlying features are based on the operations or activities of one of the parties to the contract. This change comes after years of feedback that the definition of a derivative has been applied too broadly, pulling in transactions that did not always reflect the economic reality of the agreements.

Examples of such arrangements include research and developing funding agreements or litigation funding contracts, where classification as derivatives created complexity and inconsistency in reporting. By adding this exception, FASB intends to reduce costs, simplify evaluations, and bring greater consistency to how these transactions appear in financial statements. 

The second issue addressed by the ASU is how share-based non cash consideration, such as warrants to stock received from a customer in exchange for goods or services, should be treated. The guidance clarifies the interaction between Topic 606 on revenue, Topic 815 on derivatives, and Topic 321 on equity securities. The aim is to give investors more comparable information while also reducing complexity for preparers and auditors who deal with these types of arrangements.