FASB publishes guidance on paid-in-kind dividends

FASB published an Accounting Standards Update (ASU) that provides authoritative guidance on how an issuer should initially measure paid-in-kind (PIK) dividends on equity-classified preferred stock. The ASU is based on a recommendation of the Emerging Issues Task Force.

“The new ASU will enhance the comparability of financial information reported among companies that issue PIK dividends on equity-classified preferred stock,” FASB Chair Richard Jones said in a news release. “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.”

Stakeholders had expressed concerns that GAAP does not address how an issuer should initially measure PIK dividends on equity-classified preferred stock. That resulted in diversity in practice, which affects 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. This diversity in practice reduced comparability of financial reporting information among entities that issue PIK dividends on equity-classified preferred stock.

To address stakeholders’ concerns, the ASU requires that PIK dividends on equity-classified preferred stock be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement.

FASB webinar set for May 4

FASB will provide a semiannual update on its standard-setting activities pertaining to private companies and not-for-profit organizations during a webinar May 4 at 1 p.m. ET. Registration is open for the free event, but attendance is limited to the first 1,000 individuals who log on that day. Attendees will be eligible for up to two CPE credits.

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