Derivative vs. revenue: Key impacts of new FASB guidance

Mar 31, 2026

Angela Fergason, revenue and compensation accounting partner at PwC, and Bret Dooley, PwC Deputy Chief Accountant for financial instruments, unpack FASB’s ASU 2025-07. They discuss the new derivative scope exception tied to operations. They explain when share-based customer payments fall under revenue versus financial-instrument guidance. They use real-world examples and cover transition and adoption considerations.

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INSIGHT

New Scope Exception Narrows Derivative Accounting

The ASU narrows when derivative accounting applies by adding a principles-based scope exception for contracts tied to a party's own operations.
Bret Dooley explains it prevents treating R&D funding, litigation financing, and similar activity-linked payouts as derivatives when not decision-useful.

INSIGHT

Market Based Features Still Fall Under Derivatives

The scope exception excludes market‑based underlyings so traditional swaps and commodity exposures remain derivatives.
Bret Dooley highlights exclusions for market rates, financial asset performance, and indexes to avoid sweeping out vanilla hedges.

ANECDOTE

Real Contracts That Would No Longer Be Derivatives

R&D funding, litigation financing, and ESG-linked debt are concrete examples that motivated the scope exception.
Bret Dooley describes investors repaying based on FDA approval, litigation wins, or emissions targets tied to a company's operations.

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ASU 2025-07, Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract, is new FASB guidance that adds a derivative scope exception and clarifies the boundary between revenue and financial instruments guidance for share-based non-cash consideration from customers.

In this episode, we discuss:

2:39 – New derivative scope exception for contracts tied to operations
11:05 – Applying revenue versus financial instruments guidance
14:55 – Examples illustrating application of the share-based consideration guidance
22:59 – Effective date, transition, and adoption considerations

For more information, read our In depth, FASB issues new standard on derivative and revenue scoping and check out chapter 3 of our Derivatives and hedging guide.

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About our guest

Bret Dooley is a PwC National Office Deputy Chief Accountant who leads teams focused on the financial services sectors and accounting for financial instruments. He has over 25 years of experience in the financial services, banking, and capital markets industries. Bret focuses on emerging financial reporting issues related to financial instruments, developing interpretive guidance, and assisting clients in resolving complex accounting matters.

Angela Fergason is a partner and standard setting leader in PwC's National Office who specializes in accounting for revenue and employee compensation arrangements. She also consults on a range of financial reporting issues impacting technology companies.

About our guest host

Diana Stoltzfus is a partner in PwC’s National Office who helps to shape PwC’s perspectives on regulatory matters, responses to rulemakings and policy development, and implementation related to significant new rules and regulations. Prior to rejoining PwC, Diana was the Deputy Chief Accountant in the Office of the Chief Accountant (OCA) at the SEC where she led the activities of the OCA’s Professional Practices Group.

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