The Financial Accounting Standards Board released an
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The update stems from a recommendation by FASB’s Emerging Issues Task Force, after some of FASB’s stakeholders voiced concerns that current generally accepted accounting principles, or GAAP, doesn’t address how an issuer should initially measure paid-in-kind dividends on equity-classified preferred stock.
That has led to differences in practice among various companies, in turn impacting the measurement of the equity-classified preferred stock presented on the statement of financial position and, for entities that report earnings per share, the amount of income available to common shareholders. The variations have reduced the ability of investors and analysts to compare financial reporting information among entities that issue paid-in-kind dividends on equity-classified preferred stock.
To address these concerns, the accounting standards update requires PIK dividends on equity-classified preferred stock to be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement.
“The new ASU will enhance the comparability of financial information reported among companies that issue PIK dividends on equity-classified preferred stock,” said FASB chair Richard Jones in a statement. “It also will provide investors with additional information about the liquidation value of the preferred stock that will be relevant to their capital allocation decisions.”
The amendments in the update take effect for all entities for annual reporting periods starting after Dec. 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is allowed in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. The
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