FASB Issues New ASU on Improvements to Nonemployee Share-Based Payment Accounting

By Bryan Decker, CPA, Senior Manager

As part of its simplification initiative, the Financial Accounting Standards Board (FASB or Board) recently issued Accounting Standards Update (ASU) 2018-07—Compensation—Stock Compensation (Topic 718):  Improvements to Nonemployee Share-Based Payment Accounting. 

Areas of simplification in this ASU pertain to accounting for nonemployee share-based payments such as transactions involving the acquisition of goods and services from nonemployees.  However, some of the changes apply only to nonpublic entities. 

In order to preserve operating cash flows, some entities often times issue share-based payments to procure goods or services that are used by the entity in its operations.  Previously, share-based payments to nonemployees were covered by Accounting Standards Codification (ASC) Topic 505-50: Equity-Based Payments to Non-Employees.  ASU 2018-07 supersedes Topic 505-50 by amending Topic 718 to apply to all share-based payment transactions where an entity acquires goods or services for its operations. 

ASU 2018-07 amends Topic 718 to make it clear that it does not apply to share-based payments used in financing to the issuer or in awards granted in conjunction with selling goods or services to a customer pursuant to a contract accounted for under Topic 606: Revenue from Contracts with Customers. 

Summary of Changes 



Remeasurement at Time of Adoption

An entity should only remeasure liability-classified awards that have not been settled by the date of adoption, and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.  Upon transition, the entity is required to measure these nonemployee awards at fair value as of the adoption date.  The entity must not remeasure assets that have already been recorded. 

Effective Dates

ASU 2018-07 effective dates are as follows:

  • Public entities:for annual reporting periods beginning after December 15, 2018, including interim periods within that fiscal year.
  • Other entities:for annual reporting periods beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.

Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.  

Contact Us

If you have any questions about this new ASU or about accounting and auditing in general, please contact either of the individuals below or a member of your PKF O’Connor Davies client service team.

Robert M. Rollmann, CPA, CGMA
Partner in Charge of Quality Assurance
[email protected]

Bryan Decker, CPA
Senior Manager
[email protected]