In brief
FASB proposed new guidance for payments made on behalf of a customer or to a customer of the company's customer.
A payment would reduce revenue when the company promised it, created a reasonable expectation or effectively granted a price concession.
Comments on the proposal are due November 23, 2026.
Two companies can make the same payment and report it differently.
One records an expense. The other reduces revenue. The difference may come down to whether the recipient bought directly from the company, through a distributor or somewhere farther down the sales chain.
FASB wants to narrow that gap with a proposed update to Topic 606, the revenue-recognition standard. Here's why the classification matters: investors may see different revenue and margin trends even when operating profit barely moves.
The rule already starts with a simple idea
Under Topic 606, money paid to a customer usually reduces the transaction price and therefore revenue. The exception is a payment for a distinct good or service that the customer provides to the company.
Hard cases sit outside the direct relationship. A maker may pay a retailer that buys through a distributor. A company may fund an incentive for its customer's customer. Another payment may be made on a customer's behalf.
Current guidance does not clearly say when those payments count as consideration payable to a customer. That has allowed similar arrangements to land in different places on the income statement.
The proposal follows the promise
Under the proposed Accounting Standards Update%E2%80%94Consideration%20Payable%20to%20a%20Customer.pdf), a payment connected to satisfying the company's promise would be treated as consideration payable to a customer if either of two tests is met.
First test: did the company clearly promise to make the payment?
Second test: does the customer reasonably expect it? That can happen because of an implied promise or because the payment is really a price cut.
If the payment qualifies and is not for a distinct good or service, it reduces the transaction price and revenue.
Classification changes the story investors see
Moving an amount from expense to a reduction of revenue may not change operating profit dollar for dollar. But it can change gross revenue, growth rates, margins and performance measures used in contracts or compensation plans.
That is why this is more than a line-item cleanup. A company may need to revisit how it describes incentives, rebates, market-development funds and other payments across a distribution chain.
Any company or group using Topic 606 could be affected if it makes a covered payment tied to a revenue contract.
Start with the payment map
Companies do not need to wait for a final rule to understand their exposure. The first useful step is an inventory of payments tied to customers and downstream buyers.
For each payment, document the recipient, the contract, the business reason, who expected the payment and whether the company received a distinct good or service. That fact pattern will matter more than the label on the invoice.
FASB is accepting comments through November 23. The final standard may change after feedback, so companies should not treat the proposal as current GAAP.
The goal is consistency. The practical work starts by finding every payment that looks like an expense but may really be a quieter discount on the sale.
