Compensation—Stock Compensation (Topic 718)

No. 2018-07 June 2018

Compensation--Stock Compensation (Topic 718)

Improvements to Nonemployee Share-Based Payment Accounting

An Amendment of the FASB Accounting Standards Codification?

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Accounting Standards Update

No. 2018-07 June 2018

Compensation--Stock Compensation (Topic 718)

Improvements to Nonemployee Share-Based Payment Accounting

An Amendment of the FASB Accounting Standards Codification?

Financial Accounting Standards Board

Accounting Standards Update 2018-07

Compensation--Stock Compensation (Topic 718)

Improvements to Nonemployee Share-Based Payment Accounting

June 2018

CONTENTS

Page Numbers

Summary ...........................................................................................................1?4 Amendments to the FASB Accounting Standards Codification? ...................5?169 Background Information and Basis for Conclusions ..................................170?181 Amendments to the XBRL Taxonomy ...............................................................182

Summary

Why Is the FASB Issuing This Accounting Standards Update (Update)?

The Board is issuing this Update as part of its Simplification Initiative. The objective of the Simplification Initiative is to maintain or improve the usefulness of the information provided to the users of financial statements while reducing cost and complexity in financial reporting.

The areas for simplification in this Update involve several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation--Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Some of the areas for simplification apply only to nonpublic entities. The accounting for nonemployee share-based payment transactions was identified as an area for simplification through (1) outreach for the Simplification Initiative, (2) ongoing dialogue with the Private Company Council about making improvements to the accounting for share-based payments, and (3) the August 2014 Post-Implementation Review Report on FASB Statement No. 123 (revised 2004), Share-Based Payment.

Who Is Affected by the Amendments in This Update?

The amendments in this Update affect all entities that enter into share-based payment transactions for acquiring goods and services from nonemployees.

What Are the Main Provisions?

The amendments in this Update expand the scope of Topic 718 to include sharebased payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

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How Do the Main Provisions Differ from Current Generally Accepted Accounting Principles (GAAP) and Why Are They an Improvement?

Subtopic 505-50, Equity--Equity-Based Payments to Non-Employees, addresses aspects of the accounting for nonemployee share-based payment transactions. The accounting requirements addressed by Subtopic 505-50 are significantly different from the requirements for employee share-based payment transactions within the scope of Topic 718.

Expanding the scope of Topic 718 through the amendments in this Update improves the following areas of nonemployee share-based payment accounting:

Current GAAP

Overall Measurement Objective: Nonemployee share-based payment awards are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever can be more reliably measured.

Measurement Date: The measurement date for equityclassified nonemployee sharebased payment awards is the earlier of the date at which a commitment for performance by the counterparty is reached and the date at which the counterparty's performance is complete.

Awards with Performance Conditions: Nonemployee sharebased payment awards with performance conditions are measured at the lowest aggregate fair value.

Summary of Amendments

Consistent with the accounting requirement for employee sharebased payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.

Equity-classified nonemployee sharebased payment awards are measured at the grant date. The definition of the term grant date is amended to generally state the date at which a grantor and a grantee reach a mutual understanding of the key terms and conditions of a sharebased payment award.

Consistent with the accounting for employee share-based payment awards, an entity considers the probability of satisfying performance conditions when nonemployee share-

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