United States

Measuring share-based consideration payable to a customer


Upon its effective date, Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, will require that share-based payments awarded to a customer in conjunction with selling goods or services should be accounted for under Topic 606 of the FASB’s Accounting Standards Codification (ASC), “Revenue from Contracts with Customers.” While ASC 606 provides guidance on presentation (as a reduction of the transaction price and, therefore, of revenue), it does not provide guidance on measuring share-based payments to a customer.

To provide guidance regarding the measurement of share-based payments to a customer, the FASB recently issued a proposed ASU, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements – Share-Based Consideration Payable to a Customer. If finalized, the proposed ASU would require the application of ASC 718 to measure and classify share-based payments to a customer. The amount that would be recorded as a reduction in revenue would be based on the grant-date fair value of the share-based payment award. The classification and subsequent measurement of the award would be subject to ASC 718 unless the share-based payment award is subsequently modified and the grantee is no longer a customer.

For entities that have not yet adopted ASU 2018-07, the proposed ASU’s transition and effective date requirements would align with those in ASU 2018-07. For entities that have adopted ASU 2018-07:

  • The FASB will determine the effective date of the proposed ASU after considering stakeholder feedback.
  • The same transition provisions as those in ASU 2018-07 would be applied retrospectively to all relevant prior periods beginning with the original adoption date of ASU 2018-07 through a cumulative-effect adjustment to the opening balance of retained earnings.

The proposed ASU is available for comment until April 18, 2019.