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On June 20, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-07
Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this ASU expand the scope of Topic 718, which currently only includes share-based payments issued to employees, to include share-based payment transactions for acquiring goods and services from nonemployees.
As a result, the accounting for share-based payments issued to employees and nonemployees will be substantially aligned, with certain exceptions. The amendments in this ASU also clarify that Topic 718 does not apply to share-based payments used to effectively provide financing to the issuer or awards granted in conjunction with selling goods or services to customers as part of contract accounted for under Topic 606,
Revenue from Contracts with Customers. The ASU supersedes Subtopic 505-50
Equity – Equity-Based Payments to Non-Employees.
By expanding the scope of Topic 718 through the amendments in this ASU, the accounting for nonemployee share-based payment awards (the “awards”) is simplified as follows:
Further amendments that apply
only to non-public entities include:
For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and 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.
The amendments should be applied to new awards granted after the adoption date. Upon transition, 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, at fair value as of the adoption date. Awards that have been completed will not be remeasured retrospectively. A cumulative-effect adjustment arising from the remeasurement should be recorded in retained earnings as of the beginning of the fiscal year of adoption.
The disclosure requirements at transition include the nature of and reason for the change in accounting principle and quantitative information about the cumulative effect of the change on retained earnings or other components of equity, if applicable.
To access the full script of ASU No. 2018-07, click
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of June 20, 2018. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2018. All rights reserved.
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