FASB clarifies accounting for share-based consideration payable to a customer

FASB ASU 2025-04, Compensation – Stock Compensation (Topic 718) and Revenue form Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer, was designed to reduce diversity in practice in accounting for share-based payment awards issued by entities (grantors) to customers (grantees) that vest when the grantee purchases the grantor’s goods or services, as an incentive to stimulate customer purchases. The amendments also more closely align the accounting for share-based payment awards in ASC 718 with the core principle in ASC 606—for an entity to recognize revenue as the amount of consideration to which it expects to be entitled in exchange for transferring promised goods or services to a customer.

The amendments revise the definition of a “performance condition” in ASC 718 to explicitly include these types of vesting conditions used to incentivize customer purchases. Now, grantors must assess whether it is probable that the grantee will earn these awards and reduce the transaction price—and therefore revenue—only for share-based payment awards that are deemed probable of vesting.

Download our guide for insights about the new amendments, illustrative examples, and tables showing the differences between the accounting for share-based compensation payable to customers both before and after the ASU was issued.

The amendments are effective for all entities for annual reporting periods, including interim reporting periods within annual reporting periods, beginning after December 15, 2026. Entities may early adopt the amendments in an interim or annual reporting period in which the financial statements have not yet been issued (or been made available for issuance) as of the beginning of the annual reporting period of adoption.