FASB Releases ASU to Amend Guidance on Derivatives Scope Refinements and Make Revenue-Related Scope Clarification

The FASB has released Accounting Standards Update (ASU) No. 2025-07, Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration From a Customer in a Revenue Contract. The ASU is intended to address concerns about the application of derivative accounting to contracts that have features based on the operations or activities of one of the parties to the contract and to reduce diversity in the accounting for share-based payments in revenue contracts.

ASU 2025-07 was issued in response to feedback the FASB received on its June 2021 Invitation to Comment, Agenda Consultation. Citing the “broad and evolving interpretation” of the definition of a derivative, some stakeholders noted the difficulties associated with applying that definition, as well as the derivative scope exceptions, to certain transactions, including those involving (1) financial instruments linked to environmental, social, and governance matters and (2) other operation-specific activities, such as R&D funding arrangements and litigation funding arrangements.

In addition, clarification was needed regarding the accounting for share-based payments from customers under ASC 606. Specifically, stakeholders have questioned which guidance an entity should apply to recognize share-based payments that are received from a customer as consideration in exchange for the transfer of good or services.

For more information, see the press release on the FASB’s Web site.