The Financial Accounting Standards Board is looking for comments on a proposed accounting standards update offering authoritative guidance on how an issuer should initially measure paid-in-kind dividends on equity-classified preferred stock.
The proposed ASU comes from a recommendation of FASB’s Emerging Issues Task Force.
The current U.S. GAAP rules don’t address how an issuer should initially measure paid-in-kind dividends on equity-classified preferred stock, FASB acknowledged. As a result, there are differences in practice that can affect 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 reduces the comparability of financial reporting information among entities that issue PIK dividends on equity-classified preferred stock.
To address those concerns, the proposed update would require PIK dividends on equity-classified preferred stock to be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement.
“For example, if the preferred stock agreement specifies that PIK dividends are calculated by multiplying the PIK dividend rate by the liquidation value of the preferred stock outstanding, an entity would initially measure the PIK dividend at that amount,” said the proposal.
FASB is asking for feedback on the proposed ASU by Oct. 27.
The proposed ASU, including information on how to submit comments, is available at on FASB’s website.
