FASB recently issued an Accounting Standards Update (ASU) responding to challenges in FASB ASC Topic 815, Derivatives and Hedging, and clarifying the related applicability of Topic 606, Revenue From Contracts With Customers.
According to the FASB news release, the ASU addresses stakeholders’ concerns about the application of derivative accounting to contracts with features based on the operations or activities of one of the parties to the contract and the diversity in accounting for share-based noncash consideration from a customer that is consideration for the transfer of goods or services.
The ASU aims to reduce the cost and complexity of evaluating whether certain contracts are derivatives, better portray the economics of those contracts in the financial statements and reduce diversity in practice resulting from the broad application of the current guidance.
The ASU also clarifies the applicability of Topic 606 and its interaction with other Topics (including Topic 815 on derivatives and hedging and Topic 321 on equity securities), in the accounting for share-based noncash consideration (such as warrants or shares) received from a customer for the transfer of goods or services. Read more.