FASB’s New Guidance on Share-Based Customer Incentives

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.