Accounting to Be Clarified for Share-Based Payments to Customers

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Public Sector Meeting

In June 2018, FASB updated the guidance for share-based payments to align the accounting treatment for such payments for both employees and nonemployees. The standard, Accounting Standards Update 2018-07, also required share-based payments awarded to a customer for selling goods or services to be accounted under Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. However, ASC 606 provides guidance on presentation but not on measurement. This lack of measurement guidance could result in future diversity in practice.

FASB is, therefore, issuing this proposal that would require entities to measure and classify share-based payments to a customer by applying the guidance in ASC 718, Compensation—Stock Compensation. The amount that would be recorded as a reduction in revenue would be measured based on the grant-date fair value of the share-based payment in accordance with Topic 718. The grant date is the date at which a supplier and customer reach a mutual understanding of the award’s key terms and conditions. The award’s classification and subsequent measurement would be subject to ASC 718 unless the award is modified or the grantee is no longer a customer.

Comments are due April 18, 2019.

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