FASB proposes ASU on equity-classified preferred stock
Defining Issues | September 2025
The proposed ASU provides new guidance on the initial measurement of paid-in-kind dividends on equity-classified preferred stock.
The FASB has issued an exposure draft of a proposed accounting standard update on the initial measurement of paid-in-kind (PIK) dividends on equity classified preferred stock.
Applicability
- Proposed ASU
- All entities that issue PIK dividends on equity-classified preferred stock, whether convertible or nonconvertible, including preferred stock classified as temporary equity (but excluding preferred stock classified as a liability under ASC 480).
Key impacts
The proposed ASU would require entities to initially measure PIK dividends on equity-classified preferred stock based on the PIK dividend rate specified in the preferred stock agreement, regardless of whether the entity has discretion to pay dividends in-kind.
The proposed ASU would explicitly exclude the following types of dividends and distributions from its scope:
- dividends on preferred stock classified as a liability under ASC 480 (distinguishing liabilities from equity);
- nonmonetary distributions of assets accounted for under ASC 845 (nonmonetary transactions);
- dividends on preferred stock payable in equity that differs in terms from the original preferred stock (such as dividends payable in common shares or preferred shares with different rights or terms);
- dividends on preferred stock payable in a variable number of shares of the preferred stock, based on a fixed monetary value; and
- stock splits or other dilutive-type adjustments.
Report contents
- Applicability
- Fast facts, impacts, actions
- Background
- Scope limitations
- Measurement of PIK dividends
- Transition and early adoption
- Next steps
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