United States

Share-based consideration payable to a customer

FINANCIAL REPORTING INSIGHTS  | 

Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, requires that share-based payments (for example, options or warrants) awarded to a customer in conjunction with selling goods or services 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 revenue, similar to other sales incentives), it does not provide guidance on measuring share-based payments to a customer or how to classify such awards on the balance sheet.

To provide guidance regarding the measurement and balance sheet classification of share-based payments to a customer, the FASB recently issued ASU 2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements – Share-Based Consideration Payable to a Customer. This ASU requires the application of ASC 718 to measure and classify share-based payments to a customer. The amount to be recorded as a reduction in revenue is based on the grant-date fair value of the share-based payment. The classification and subsequent measurement of the award are subject to the guidance in 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, ASU 2019-08 is effective for (a) public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and (b) other than public business entities in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. For entities that have adopted ASU 2018-07, ASU 2019-08 is effective in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.


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