FASB agenda request


In our agenda request submitted to the FASB, we ask the Board’s Emerging Issues Task Force (EITF) to address an issue that has caused diversity in practice: whether warrants or other equity instruments issued to customers in a revenue transaction that are not exchanged for a distinct good or service and that vest when a customer makes a purchase constitute a service condition or a performance condition, as defined in ASC 718. 


The diversity in views can lead to significant differences in financial reporting outcomes, since an entity must reduce revenue for the maximum number of warrants that can be issued—regardless of vesting expectations—if customer purchases are deemed to be a service condition and the entity (grantor) elects to recognize nonemployee forfeitures when they occur, rather than estimating forfeitures. In our experience, most of our clients elect to recognize nonemployee forfeitures when they occur. On the other hand, if these warrants are considered to contain a performance condition, an entity factors in the probability of the warrants vesting when reducing revenue.


Download our request here  to read it in full.


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