Alert: FASB Accounting Standards Update No. 2019-08 – Codification Improvements – Share-Based Consideration Payable to a Customer

Category: US GAAP

Alert: FASB Accounting Standards Update No. 2019-08 – Codification Improvements – Share-Based Consideration Payable to a Customer

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. This ASU expanded the scope of Topic 718 to include share-based payments to nonemployees in exchange for goods and services (the “awards”) and stipulated that such awards be accounted for under Topic 606 Revenue from Contracts with Customers when granted to a customer in conjunction with selling goods or services. While Topic 606 provides guidance on presentation, it does not specify when to measure the awards or how to classify them on the balance sheet. The FASB received feedback from stakeholders that this lack of guidance could lead to diversity in practice.

To address this diversity, on November 11, 2019, the FASB issued ASU No. 2019-08 Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements – Share-Based Consideration Payable to a Customer. The amendments in this ASU require entities to measure and classify share-based payments awards granted to a customer in accordance with the guidance in Topic 718.

As a result, the accounting for the awards is simplified as follows:

  • The amount recorded as a reduction in the transaction price would be measured at the grant-date fair value of the share-based payment award, i.e., the date at which a grantor and a grantee reach a mutual understanding of the key terms and conditions of a share-based payment award;
  • The classification and subsequent measurement of such awards would be subject to the requirements of Topic 718 unless the award is subsequently modified, and the grantee is no longer a customer.

For entities that have not yet adopted ASU No. 2018-07, the amendments are effective as follows:

  • For public business entities, the amendments are effective in fiscal years beginning after December 15, 2019, including interim periods therein.
  • For all other entities, the amendments are effective in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

For entities that already have adopted ASU No. 2018-07, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods therein.

Early adoption is permitted, but no earlier than an entity’s adoption date of ASU No. 2018-07.

To access the full script of ASU No. 2019-08, click here.

To access the full script of ASU No. 2018-07, click here.

This communication contains a general overview of the topic and is current as of November 11, 2019. 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 2019. All rights reserved.

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Michelle Balmer

Michelle Balmer CPA, CA

Vice President, Assurance

Michelle Balmer, CPA, CA, is a Senior Assurance Services Partner with MNP. With 14 years of experience in public practice, Michelle helps a broad range of public and privately held companies in a variety of industries. She also works on special projects, including costing studies, benchmarking and best-practice studies, operational analyses, litigation support and due diligence.

As a key member of MNP's Assurance team, Michelle has played an instrumental role in assurance policy development, implementing accounting and assurance standards firm-wide and educating assurance practitioners regarding methodologies and new pronouncements. She also provides technical advice and consultation on accounting and assurance issues, as well as on rules of professional conduct issues, to all MNP practitioners.

Michelle was certified a Chartered Accountant (CA) after obtaining a Bachelor of Commerce degree from the University of Alberta. She has been actively involved with the Institute of Chartered Accountants of Alberta, including the Chartered Accountants School of Business, in an instructional and marketing capacity. An avid volunteer, she has assisted numerous groups such as the Easter Seals of Alberta, Paralympic Sports Association and Junior Achievement of Northern Alberta.