The Financial Accounting Standards Board (FASB) released a proposed Accounting Standards Update (ASU) on Sept. 30 to improve the accounting guidance for share-based consideration payable to a customer for selling goods or services.
The deadline for comments on the proposed ASU is Nov. 14.
The just-proposed changes aim to improve financial reporting results by requiring revenue estimates to more closely align with an entity’s expectations, according to a FASB release.
Additionally, the proposed changes would improve the comparability and better align the requirements for share-based consideration payable to a customer with the principles in Topic 606, Revenue from Contracts with Customers.
According to CPA Practice Advisor, in June, the FASB added a project to its technical agenda to improve the accounting guidance under Topic 606, Revenue from Contracts with Customers and Topic 718, Compensation-Stock Compensation, for share-based consideration payable to a customer in conjunction with selling goods or services.
The FASB also said that it is issuing this guidance to reduce diversity in practice as well as "improve the decision usefulness and operability of the guidance for share-based consideration payable to a customer in conjunction with selling goods or services."
In the proposal, the FASB said that guidance in Topic 606, Revenue from Contracts with Customers, "requires that an entity account for consideration payable to a customer as a reduction. of the transaction price and, therefore, as a reduction of revenue unless the payment to the customer is in exchange for a distinct good or service."
The proposal would impact the timing of revenue recognition for entities that provide pay share-based consideration to a customer or to other parties that buy the entity’s goods or services from the customer. An example would be equity instruments.
The changes would also encourage an entity's customers to buy its goods and services. Specifically, the FASB said that the proposed amendments would clarify the requirements for share-based consideration payable to a customer that vests upon the customer buying a specified volume or monetary amount of goods and services from the entity.
Interested parties have three ways to submit their comments.
The first option is to use the electronic feedback form available on the FASB website at Exposure Documents Open for Comment.
Another option is to email comments to director@fasb.org, using File Reference No. 2024-ED300.
Interested parties can also send a letter to “Technical Director, File Reference No. 2024-ED300, FASB, 801 Main Avenue, PO Box 5116, Norwalk, CT 06856-5116.”