The leading association for the stock and executive compensation profession
Join a professional community 6,000+ members strong
Continue your investment in your professional development and community
Our member care center is here to assist you
Country-specific guidance for stock plan design and administration
Connect with a chapter in your area
Learn more about and engage your peers
Attend an NASPP event for unbeatable professional development and networking
Ask, find and provide answers to burning industry questions
Professional development to keep you at the top of your game
Expert industry perspectives and guidance for your daily work
Enrich you career and discover new opportunities
Be there for the 27th annual event Sept. 16-19, 2019 in New Orleans!
It’s a slow news day here at the NASPP, so for today’s blog entry, I cover a topic that has, at best, only a tenuous connection to stock compensation: accounting for stock and other equity-based arrangements issued to customers.
The idea here is that a company offers its customers stock or other equity arrangements as an incentive to buy its product/service. The stock might be offered through a customer loyalty program (sort of like frequent flyer miles, but with stock instead) or might be a one-off promotion (e.g., “buy now and we’ll throw in ten shares of our stock at no extra cost”). Think about some of the hot IPOs on the horizon for this year—if you could have gotten some of their stock or an option to buy their stock just for using their product/service, you might have been pretty motivated to do so.
Nothing, really. Customers aren’t employees or even contractors; they aren’t providing a service to the companies they buy things from. So why am I blogging about this? Three reasons:
Companies that have adopted ASU 2018-07 (the ASU that expanded ASC 718 to cover awards issued to nonemployees) account for stock issued to customers under ASC 606 (which covers revenue recognition). That’s why companies couldn’t adopt ASU 2018-07 until they had adopted ASC 606.
Under ASC 606, the stock issued to customers is considered a reduction in revenue: the amount of revenue recorded for customers’ purchases is reduced by the value of the stock issued to them. The current uncertainties lie in how the value of the stock should be measured. Some companies have been using the measurement guidance in ASC 718 to determine the value (which requires measurement at grant) while others use the measurement guidance in ASC 606 (which requires measurement at contract inception).
The proposed ASU would stipulate that the measurement guidance in ASC 718 should be used. Thus, the amount of the reduction to revenue would be based on the grant date fair value of the arrangement under which the stock is issued. The grant date is the date that the company and the customer have a mutual understanding of the key terms of the arrangement.
The FASB is soliciting comments on the proposed update through April 18, 2019.
Thanks to Bruce Brumberg of myStockOptions.com for bringing this development to my attention.
A note about the image: Imagine the squirrels are customers and the nuts are a metaphorical representation of shares of stock. An image that has, at best, a tenuous connection to the topic seems appropriate for a topic that has a tenuous connection to stock compensation. Besides, it was this cute picture of squirrels or some boring photo of the word “GAAP” or “accounting” spelled out in blocks. You’re welcome.
Transitioning to ASU 2018-07
If your company grants equity awards to nonemployees, you are probably excited that ASU 2018-07 now allows you to account for awards to nonemployees in the same manner as awards granted to emplo...Read More
FASB Update on Awards to Nonemployees
On June 20, 2018, the FASB issued ASU 2018-07, which expands the scope of ASC 718 to cover awards issued to nonemployees. Here are five things you need to know about it.
1. Acc...Read More
FASB Makes Final Decisions on Awards Issued to Nonemployees
The FASB has decided to expand the scope of ASC 718 to include awards issued to nonemployees. Here are highlights of the FASB’s decision and some background on how we got here.
FASB Exposure Draft on Nonemployee Accounting
The FASB has issued an exposure draft of the proposed accounting standards modifi...Read More
Update to ASC 718: Diluted EPS
The FASB's update to ASC 718 is a gift that keeps on giving, at least in terms of blog entries. Today I discuss something many of you may not have considered: the impact the update will have on ...Read More