The FASB has issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. Under the new guidance, the measurement and classification of nonemployee awards is generally aligned with the existing guidance for awards to employees.
The ASU contains a table that outlines a few broad areas identified by the FASB where the new guidance is different from the existing guidance. Of the differences identified, there are two areas that are particularly notable because of their broad application: measurement date for equity-classified awards and the term used for measurement. Under previous guidance, the measurement date for equity-classified awards was the earlier of performance commitment date or date performance is complete. Under the amendments contained in ASU 2018-07, the measurement date for equity-classified awards is generally at the grant date. Furthermore, the term used for measurement of the share-based payments to nonemployees has changed, which requires measurement over the contractual term to be measured either over the expected term or the contractual term.
Under the new guidance, the cost to account for the nonemployee share-based awards may be lower, which may provide an incentive to implement the amendments early.
The effective date of the new guidance is for annual periods beginning after December 15, 2018 for public business entities, and for all other entities, the effective date is for annual periods beginning after December 15, 2019. Early adoption of this guidance is permitted, but not before the revenue recognition guidance in ASC 606 is adopted by the entity.
The full text of ASU 2018-07 is available here.
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