FASB proposes changes to consideration payable to a customer

Under the proposed ASU, payments made on behalf of a customer or to a customer’s customer would be accounted for as consideration payable to a customer when they are made in connection with the entity satisfying its promise to its customer and either of the following conditions is met:

• An explicit promise exists for the entity to make the payment; or
• The customer has a reasonable expectation that the entity will make the payment because an implicit promise exists or the payment is an in-substance price concession. An implicit promise may arise from customary business practices, published policies or specific statements. 

The proposal includes illustrative examples applying the proposed scope criteria, involving a platform operator that provides incentives in the form of end-user credits and a retailer that subsidizes interest-free financing for customers. Although the proposal's examples focus on platform operators and retailers, the amendments are not limited to those entities or industries and could apply to any entity that makes payments on behalf of customers or to their customers' customers. We generally expect payments that are made on behalf of customers or are in-substance price concessions to be accounted for as reductions of revenue, which may differ from current practice for some entities.

The proposed amendments do not change the existing guidance for determining whether a payment is in exchange for a distinct good or service. Rather, the amendments clarify which payments should be evaluated under the consideration payable to a customer framework.