On Sept. 30,FASB released a proposed Accounting Standards Update (ASU) offering authoritative guidance on how issuers should initially measure paid-in-kind (PIK) dividends on equity-classified preferred stock.

The proposal is based on an Emerging Issues Task Force recommendation. Stakeholders are being asked to review the proposal and to offer their comments  by Oct. 27, 2025.

Currently, generally accepted accounting principles do not address how an issuer should first measure PIK dividends on equity-classified preferred stock. Because of this lack of guidance,  there exists a diversity in practice. This impacts the measurement of the equity-classified preferred stock presented on the statement of financial position. for entities that report earnings per share, the amount of income available to common shareholders.

This diversity in practice limits comparability of financial reporting information in entities that issue PIK dividends on equity-classified preferred stock.

In response to the concerns of stakeholders, the proposed ASU is requiring that PIK dividends on equity-classified preferred stock be first measured based on the PIK dividend rate included in the preferred stock agreement.