The Financial Accounting Standards Board (FASB) is seeking public comment on the proposed Accounting Standards Update (ASU) to standardise how issuers initially measure paid-in-kind (PIK) dividends on equity-classified preferred stock.  

This guidance is expected to address the current diversity in practice and enhance the comparability of financial reporting. 

The proposed amendments would apply to all entities that issue PIK dividends on equity-classified preferred stock.  

According to the proposal, these dividends should be measured based on the rate stated in the preferred stock agreement.  

This measure does not alter the entity’s determination of when to recognise PIK dividends. 

The FASB’s initiative is based on a recommendation from the Emerging Issues Task Force (EITF).  

Stakeholders are invited to review and provide feedback on the proposed ASU by 27 October 2025.  

Currently, the lack of authoritative guidance under generally accepted accounting principles has led to varied practices, impacting the presentation of equity-classified preferred stock and, for some entities, the calculation of income available to common shareholders. 

To address these inconsistencies and to enhance financial reporting comparability, the proposed ASU mandates the initial measurement of PIK dividends on equity-classified preferred stock to be based on the stated dividend rate in the preferred stock agreement. 

Prior to this, FASB issued an ASU focusing on refining derivative accounting practices.  

This includes the introduction of Topic 815, Derivatives and Hedging, which defines the accounting requirements for contracts that qualify as derivatives. 

Additionally, the ASU clarifies the application of Topic 606, Revenue from Contracts with Customers, especially regarding its interaction with other topics such as Topic 815 on derivatives and hedging, and Topic 321 on equity securities.