FASB publishes guidance on paid-in-kind dividends

FASB published an Accounting Standards Update (ASU) that provides authoritative guidance on how an issuer should initially measure paid-in-kind (PIK) dividends on equity-classified preferred stock.

“The new ASU will enhance the comparability of financial information reported among companies that issue PIK dividends on equity-classified preferred stock,” FASB Chair Richard Jones said in a news release. “It also will provide investors with additional information about the liquidation value of the preferred stock that will be relevant to their capital allocation decisions.”

Stakeholders had expressed concerns that GAAP does not address how an issuer should initially measure PIK dividends on equity-classified preferred stock. In response, the ASU now requires that PIK dividends on equity-classified preferred stock be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement. Read more.