The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) aimed at refining derivative accounting practices and addressing the diversity in accounting for share-based noncash consideration.
The revisions in this update respond to feedback from stakeholders who believe that the current definition of a derivative is overly extensive and should be exempted for certain agreements.
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They are applicable to all entities engaged in nonexchange-traded contracts where the underlying terms are contingent on the operations or activities unique to one of the contract parties.
The ASU introduces Topic 815, Derivatives and Hedging, which establishes accounting requirements for contracts that meet a derivative’s characteristics-based definition.
The contracts encompass both new types of transactions including bonds with interest payments tied to specific performance metrics, and more established dealings, such as funding agreements for research and development or litigation financing.
This exception is expected to simplify the evaluation process for these contracts, provide a more accurate representation of their economics in financial statements, and reduce the diversity in practice caused by the broad application of existing guidance in a changing business environment.
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By GlobalDataThe update also clarifies the application of Topic 606, Revenue from Contracts with Customers, particularly in relation to its interaction with other Topics, including Topic 815 on derivatives and hedging and Topic 321 on equity securities.
The clarification is intended to enhance the comparability of investor information and reduce the complexity and costs associated with accounting and reporting for preparers and auditors.
In August 2025, FASB chair Richard Jones announced the appointment of Angie Storm, the chief accountant at KPMG, to the Emerging Issues Task Force (EITF).
The EITF aids the FASB by identifying and resolving specific financial accounting issues within the FASB Accounting Standards Codification.
