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The guidance in ASC 718, Compensation—Stock Compensation, applies to various types of equity-based awards that companies use to compensate their employees (see SC 1.5 regarding terminology used in this guide). Under ASC 718, companies recognize the fair value of those awards in their financial statements, generally beginning on the date the awards are granted. This guide covers the significant accounting aspects of ASC 718, with an emphasis on awards granted by public companies to their employees. Additional considerations for employee awards granted by nonpublic companies are discussed in SC 6. The accounting for awards granted to nonemployees is addressed in SC 7.
This guide does not address the income tax, earnings per share, or cash flow implications of stock-based compensation awards nor other presentation and disclosure matters. Refer to the following PwC guide sections for guidance on those matters:
•  TX 17 for guidance on income tax accounting consequences
•  FSP 7.5.5.5 for earnings per share implications
•  FSP 6.7.2.7 for cash flow statement considerations
•  FSP 15 for guidance on the presentation and disclosure of stock-based compensation
New guidance
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to amend the accounting for share-based payment awards issued to nonemployees. Under the revised guidance, the accounting for awards issued to nonemployees will be similar to the model for employee awards, except that:
•   the ASU allows an entity to elect on an award-by-award basis to use the contractual term as the expected term assumption in the option pricing model, and
•   the cost of the grant is recognized in the same period(s) and in the same manner as if the grantor had paid cash.
The update is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity's adoption of ASC 606.
ASU 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), amends ASC 606, Revenue from contracts with customers, to clarify that consideration payable to a customer also includes equity instruments (for example, shares, share options, or other equity instruments). SC 7.2.6 and SC 7.2.7 address the accounting for share-based payments granted to customers upon adoption of ASU 2019-08. Under the clarified guidance, consideration paid to a customer in the form of equity instruments that is not in exchange for a distinct good or service is measured and classified following the guidance in ASC 718 for both equity- and liability-classified awards. The value determined at the grant date is reflected as a reduction of the transaction price (and therefore revenue) following the guidance in ASC 606.
ASU 2019-08 is effective for public business entities, and all other entities that have early adopted the nonemployee guidance in ASU 2018-07, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities that have not adopted ASU 2018-07, the guidance in ASU 2019-08 is effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.
Early adoption, including in interim periods, is permitted in financial statements that have not yet been issued/made available for issuance, but no earlier than the adoption of the nonemployee guidance in ASU 2018-07.
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