FASB proposes guidance for measuring share-based payments to customers

By Ken Tysiac

FASB issued a proposal Monday that would provide explicit guidance on how to measure share-based payments to a customer.

The proposal would require entities to measure and classify share-based payments to a customer by applying the guidance in FASB ASC Topic 718, Compensation — Stock Compensation.

Under the proposal, share-based payments to a customer would be measured on the basis of the grant-date fair value of the share-based payment, in accordance with Topic 718. The grant date is the date when a supplier and a customer reach a mutual understanding of the key terms and conditions of a share-based payment award.

The classification and subsequent measurement of the award would be subject to Topic 718 unless the share-based payment award is modified later and the grantee is no longer considered a customer.

FASB’s proposal is an attempt to reduce confusion following the issuance last June of Accounting Standards Update (ASU) No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. That ASU required that share-based payments awarded to a customer in conjunction with selling goods or services be accounted for under Topic 606, Revenue From Contracts With Customers.

But Topic 606 does not provide guidance on measuring share-based payments to a customer, so there were concerns that entities might apply either noncash consideration guidance under Topic 606 (measure at contract inception) or Topic 718 (measure at grant date).

If approved, Monday’s proposal would clarify that the Topic 718 guidance should be applied in these circumstances. Comments can be submitted by April 18 at FASB’s website.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

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