The FASB has issued ASU 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract. The amendments are expected to reduce the cost and complexity of evaluating contracts, better reflect the economics of the contracts, and reduce diversity in practice. 

Under ASU 2025-07, contracts with entity-specific variables (e.g. financial metrics, operations) are excluded from derivative accounting when certain conditions are met.  Additionally, ASU 2025-07 clarifies that share-based payments from customers should initially be accounted for under revenue recognition guidance (Topic 606) rather than as derivatives or equity securities.

ASU 2025-07 can be applied either prospectively to new contracts or on a modified retrospective basis, through an adjustment to retained earnings at the beginning of the fiscal year of adoption.  ASU 2025-07 is effective for all entities for fiscal years beginning after December 15, 2026. Early adoption is permitted.

The full text of ASU 2025-07 can be found here.

Published: 10/28/2025

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