Join 250,000+
professionals today

Add Insights to your inbox - get the latest
professional news for free.

myCPE

FASB’s New Guidance on Share-Based Customer Incentives

Join our 250K+ subscribers

Join our 250K+ subscribers

Subscribe

19 MAY 2025 / FASB REPORTING

FASB’s New Guidance on Share-Based Customer Incentives

FASB’s New Guidance on Share-Based Customer Incentives
Summary
It is generated by AI

The Financial Accounting Standards Board (FASB) has rolled out an update, ASU 2025-04, that clarifies the accounting procedures for share-based customer incentives. This update streamlines the financial procedures involved in these sales strategies, making revenue modeling easier for CFOs and controllers, reducing audit risks for auditors, and simplifying quarter-end tasks for advisors and tax professionals.

Ever thought your customer would walk away from a deal, not just with your product but with a piece of your company? Yep, equity as a sales incentive isn’t just a Silicon Valley stunt anymore. But while the idea is slick, the accounting behind it? Not so much — at least not until now. On May 15, 2025, the Financial Accounting Standards Board (FASB) fired off ASU 2025-04, a long-awaited update that patches the blurry guidance around share-based consideration payable to a customer. We’re talking about those "Buy $X from us and get stock" deals that sit awkwardly between ASC 606 (revenue recognition) and ASC 718 (stock compensation). The result? A cleaner playbook and fewer accounting migraines for pros across finance, audit, and advisory.

No More Guesswork

Before ASU 2025-04, companies were in a lurch. Was a customer’s purchase commitment a service condition? A performance one? Nobody knew for sure, which meant revenue recognition got delayed, forfeitures were tracked inconsistently, and companies danced between ASC 606 and ASC 718 like it was a pastime of accounting hopscotch.

Here’s what the new ASU clarifies:

  • Volume-based and monetary purchase targets are now squarely performance conditions, not service ones.
  • Purchases by a customer’s customer (think downstream buyers) and "potential purchases" like master agreements also count as performance-based.
  • The variable consideration constraint under ASC 606? Not applicable anymore to these awards.
  • No more waiting on forfeitures: entities must estimate unvested shares upfront, aligning the accounting for these deals with how employee equity is already treated under ASC 718.

According to PwC, this change “improves the operability of the guidance” and reduces “diversity in practice”, which is accountant-speak for “it finally makes sense.”

Why This Matters in Practice

Let’s get real. In today’s high-stakes, margin-tight marketplace, companies are getting creative with incentives. But those slick stock perks? They just became way more structured. Under ASU 2025-04, share awards tied to sales milestones are treated as performance-based. That means:

  • Revenue isn’t touched until targets are hit.
  • Fair value is measured under ASC 718 even before shares are officially granted.
  • Once the grant date hits, that fair value gets locked, and vesting drives recognition.

This update essentially cuts through the ambiguity of past practice. For CFOs and controllers, this makes revenue modeling cleaner and helps align finance with sales strategy. For auditors? It brings consistency in client treatment and lessens the audit risk. And for advisors or tax professionals? Fewer “fire drills” at quarter-end.

Implications for the Professionals

If you're advising clients, managing reporting, or sitting in the FP&A seat, here's your heads-up:

  • You can’t wing it anymore: share-based incentives must now be valued, tracked, and disclosed with intent.
  • Estimate those forfeitures early, no more waiting till the end of the road.
  • ASC 718 now governs the whole lifecycle, from day zero to vesting.

Even if the grant date hasn’t hit, ASC 718 rules apply, meaning companies need to track these incentives more like employee equity and less like variable marketing spend. For corporate finance teams, it’s a chance to sync deal structuring with compliance. For auditors, it’s cleaner documentation and has fewer surprises. For tax professionals? You now have clearer guidance on when and how to account for potential deductions and liabilities.

Time to Get Your House in Order

The new standard hits the books for annual periods beginning after December 15, 2026, but early adoption is fair game. And when it comes to implementation, you’ve got two choices:

  • Modified retrospective: apply it moving forward.
  • Full retrospective: restate prior periods.

If you're going full send and know how the awards played out, great, apply that. If not, you’ll need to estimate. Either way, start prepping now:

  • Revisit your current share-based arrangements.
  • Build processes to measure fair value pre-grant.
  • Tighten your disclosure strategy, both qualitative and quantitative.

Private companies, this is your moment to clean up before expanding incentive programs. Public companies? You’ve got audit committees to brief and systems to align. Chop chop.

Bottom Line

FASB’s ASU 2025-04 isn’t just an accounting update; it’s a strategic shift. Share-based customer incentives are becoming more mainstream, and now, there's a rulebook that makes sense. So, whether you're knee-deep in debts, leading client strategy, or prepping your Q4 audit, this update delivers what we all crave: clarity, consistency, and fewer late-night fire drills. And in the accounting world? That’s what we call a win. Subscribe to MYCPE ONE Insights for more updates on accounting standards, financial reporting trends, and insights that keep your team's future ready.

Until next time…

Don’t forget to share this story on LinkedIn, X and Facebook

📢MYCPE ONE Insights has a newsletter on LinkedIn as well! If you want the sharpest analysis of all accounting and finance news without the jargon, Insights is the place to be! Click Here to Join

Unlimited CPE for Just $199/Year!

Get CPE credits by reading or listening to approved content. Enjoy unlimited CPE for CPA (US), EA, CMA, CIA, CFE, SHRM, HRCI, and 100+ other designations—all for just $199 per year! (Learn More)

  • 15,000+ Hrs of Content
  • Live, Audio, Video, E-Books
  • 500+ Subject Areas
  • Insights - CPE Approved News Articles
  • 700+ Content Creators
  • Audio Based Courses
  • Mandatory Ethics Courses
  • Monthly and Quarterly Updates
  • Compliance Packages
  • Add External Certificates
  • 250+ Compliance Packages
  • Compliance Tracking and Report
  • 100+ Advanced Certification Programs
  • Instant Certification and Fast Reporting
  • 50+ Conferences and Events Access
  • Mobile App Access (iOS and Android)
  • Podcasts with Industry Leaders
  • Communities

Team Subscriptions Available – Starting at Just $199/Year!

Schedule a no-obligation call