FASB proposes to clarify guidance on consideration payable to customers

• Key insight: Uncover how FASB plans to change how companies account for payments made outside direct distribution chains.
• What’s at stake: Companies navigating inconsistent revenue recognition practices for payments made outside direct distribution chains.
• Forward look: The Nov. 23, 2026, deadline for stakeholders to submit feedback on the proposal.

The Financial Accounting Standards Board issued a proposed accounting standards update Thursday to clarify when payments made on behalf of a customer, or to a customer of an entity’s customer, should be accounted for as consideration payable to a customer under the revenue recognition standard.

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The proposed ASU comes from a recommendation of FASB’s Emerging Issues Task Force. 

Under Topic 606, Revenue from Contracts with Customers, the consideration payable to a customer is accounted for as a reduction of the transaction price and thus of revenue unless the payment is in exchange for a distinct good or service provided by the customer. But the current guidance doesn’t specifically address when payments made to parties outside the direct distribution chain, such as those that don’t buy the entity’s goods or services either directly from the entity or indirectly via the entity’s customer, are consideration payable to a customer under Topic 606. As a result, companies may account for similar payments differently, resulting in diversity in practice.

The proposed amendments would clarify that payments made on behalf of a customer, or to a customer of an entity’s customer, should be consideration payable to a customer when made in connection with the entity satisfying its promise to the customer if either (1) the entity has explicitly promised to make the payment or (2) the customer has a reasonable expectation that the entity will make the payment because the entity has implicitly promised to do so or the payment represents an in-substance price concession.

The proposal would apply to all companies and other organizations that make these payments in connection with a revenue contract accounted for under Topic 606. The proposed amendments aim to make accounting for similar payments more consistent and provide a clearer, less complex framework for evaluating them.

FASB is asking its stakeholders to review and comment on the proposal by Nov. 23, 2026.

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