FASB Updates Accounting for share-based payment Made to a Non-Employee

The Financial Accounting Standards Board (FASB) has just released an accounting standards update regarding share-based payments made by the companies to people who are not employees of the company such as service providers and other suppliers.

The recent update expands the scope of ASC 718, Compensation—Stock Compensation, due to the update the accounting standard will now not only cover the share-based payments made to employees but will also provide guidance regarding the treatment of share-based payments made to people that are not employees of the company. This update to the standard is a step forward towards substantially aligning the accounting treatment for share-based payments to non-employees as well as employees of a company. The FASB’s simplification initiative regarding share-based payments to employees and non-employees supersedes Subtopic of ASC 505-50, Equity—Equity-Based Payments to Non-Employees.

Russell G. Golden, FASB Chairman, has said that stakeholders suggested that the FASB should take actions with regards to improving the accounting for share-based payments made non-employees so that to reduce complexity and cost surrounding the application of the guidance, while also improving the standard of financial reporting for these sort of transactions.

He further said that the standard update will make the accounting treatment for share-based payments made to suppliers, service providers and other people a lot easier for companies that more often than not uses the share-base payment method to pay off its service providers and vendors providing goods.

The update will become applicable for public companies whose fiscal years are starting after 15 December, 2018, including the interim periods falling within that financial year. For all the companies, the standard update will become effective for financial years commencing after 15 December 2019, and interim periods within financial years commencing after 15 December, 2020. Early adoption of the standard is allowed, but no earlier than a company’s adoption of ASC 606, Revenue from Contracts with Customers.