FASB Proposes To Clarify Consideration Payable to a Customer

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Background

Accounting Standards Codification (ASC) Topic 606, “Revenue From Contracts With Customers,” requires entities to evaluate payments to their customers, as well as payments to other parties that purchase the entity’s goods or services from those customers, as consideration payable to a customer. These payments generally reduce the transaction price and, therefore, revenue unless they are in exchange for a distinct good or service transferred to the entity.

The codification is less clear about payments made on a customer’s behalf or to a customer’s customer outside the entity’s direct distribution chain. For example, a marketplace platform might provide services to sellers by connecting them with buyers. In some arrangements, the platform might conclude that the seller, but not the buyer, is its customer. Because the buyer purchases the seller’s goods rather than the platform’s services, questions arise about whether the platform should account for incentives it provides to the buyer as consideration payable to its customer (the seller) or as marketing expenses.

Current practice in this area often is informed by nonauthoritative interpretive materials, including FASB/International Accounting Standards Board Joint Transition Resource Group for Revenue Recognition discussion materials, FASB staff implementation Q&As, and more recent SEC staff remarks. However, there is diversity in practice because the codification does not clearly address these arrangements. Following a recommendation from the Emerging Issues Task Force, the FASB proposed amending the codification to improve consistency and comparability in accounting for these arrangements.

Crowe observation: The proposal generally is expected to align with current practice, so many entities might not need to change their accounting. However, entities should review their existing conclusions against the proposed guidance, particularly for payments to parties outside their direct distribution chain.

Proposed clarification

Proposed paragraphs 606-10-32-25B and 32-25C would specify that payments made on behalf of a customer, or to a customer’s customer, are consideration payable to a customer when made in connection with the entity satisfying its promise to its customer. Such a connection would exist when either of the following is true:

• The entity has explicitly promised its customer that it will make the payment.
• The customer has a reasonable expectation that the entity will make the payment because either an implicit promise exists or the payment represents an in-substance price concession.

An implicit promise might arise from customary business practices, published policies, or specific statements. In-substance price concessions could include incentives, rebates, credits, and direct cash payments.

Although the proposal is expected to commonly affect platform businesses and other intermediaries, the amendments would apply to all entities with these arrangements. The FASB also proposed a corresponding amendment to Topic 718, “Compensation – Stock Compensation,” that would apply the same scope clarification to share-based consideration granted on behalf of a customer or to a customer’s customer.

Illustrative examples

The proposed ASU adds examples illustrating when payments to a customer’s customer or payments made on behalf of a customer would be consideration payable to a customer.

Payments to a customer’s customer (platform credits). A platform acts as an agent for sellers and earns a percentage of each order. The sellers are its customers; the buyers are not. The proposed ASU illustrates two scenarios involving a $10 credit provided to buyers who purchase a seller’s goods through the platform for the first time:

• Explicit promise. Under its written agreement with a seller, the platform promises to provide the credit to eligible buyers. Because the credit represents an explicit contractual promise to the seller, it is consideration payable to a customer.
• Implicit promise. The written agreement does not explicitly require the credit, but the platform customarily offers it and markets its availability. Because the seller has access to the marketing materials and is aware the credit is offered, it reasonably expects the platform to provide the credit to buyers. The platform’s customary practices and marketing communications create an implicit promise, and the credit is consideration payable to a customer.

Payments made on behalf of a customer (retail financing incentives). A retailer offers six months of interest-free financing to customers who purchase more than $2,000 of goods and obtain financing through a third-party bank. The bank underwrites and approves the loans, and the retailer pays the bank an amount equal to the market interest rate on behalf of eligible customers. Because the interest payments provide a financing benefit to eligible customers and represent an in-substance price concession, they are consideration payable to a customer.

Crowe observation: The reasonable expectation assessment focuses on expectations of the entity’s customer rather than the party receiving the payment. The absence of an explicit contractual requirement does not necessarily mean a payment falls outside the guidance for consideration payable to a customer. Instead, entities should consider the substance of the arrangement, including customary practices and communications. The FASB did not propose additional guidance for assessing reasonable expectations, noting that the concept already exists elsewhere in Topic 606, including when identifying performance obligations. Accordingly, the assessment requires judgment based on the facts and circumstances rather than a bright-line test.

Applying the existing accounting requirements

After identifying a payment as consideration payable to a customer, an entity would continue to apply the requirements in paragraphs 606-10-32-25 through 32-27:

• If the payment is in exchange for a distinct good or service, the entity accounts for it as a purchase from a supplier. Any amount exceeding the fair value of that good or service reduces the transaction price. If the fair value of the good or service cannot be reasonably estimated, the entire payment reduces the transaction price.
• If the payment is not for a distinct good or service, the payment reduces the transaction price, subject to the existing measurement and recognition requirements.

For some entities, the proposal could result in payments currently presented as expenses being presented as reductions of revenue. Payments outside the consideration payable to a customer guidance would be accounted for under other applicable GAAP. The FASB also is seeking feedback on whether the proposal could affect the timing or measurement of revenue or expense.

Feedback on negative revenue

Consideration payable to a customer can exceed the consideration received from that customer, resulting in negative revenue. Topic 606 does not explicitly address whether such amounts should remain presented as negative revenue or be reclassified as an expense. The proposed ASU would not resolve that question. Instead, the FASB is seeking feedback on whether additional standard-setting is needed, including on presentation, unit of account, cumulative assessment, and disclosure.

Next steps and transition

The proposed ASU would permit entities to elect either of two transition methods:

• Modified prospective. Apply the amendments to payments made or promised on or after the initial adoption date, without restating prior periods or recording a cumulative-effect adjustment to opening equity.
• Modified retrospective. Apply the amendments to payments made or promised after the beginning of the earliest period presented and restate the affected periods. No cumulative-effect adjustment would be recorded to opening equity for the earliest period presented.

Transition under either method would be based on when payments are made or promised rather than when the related contracts are entered into. Entities would be required to disclose the nature of and reason for the accounting change and the transition method applied. Those applying the modified retrospective method also would be required to disclose the effects on affected prior-period financial statement line items and per-share amounts.

If the amendments are finalized, the FASB will determine the effective date after considering stakeholder feedback. As proposed, early adoption would be permitted.

Comments on the proposal are due Nov. 23, 2026.

FASB materials reprinted with permission. Copyright 2026 by Financial Accounting Foundation, Norwalk, Connecticut. Copyright 1974-1980 by American Institute of Certified Public Accountants.