The NASPP Blog

The good news from the FASB just keeps coming. First, the simplification of ASC 718 and now the board has decided to include awards granted to nonemployees under the scope of ASC 718.

Background

Well over a decade ago, before even the adoption of FAS 123(R), the FASB decided that awards granted to nonemployees (except outside directors), were fundamentally different than awards granted to employees and should be accounted for differently.  “What,” you say, “that’s crazy! Why would they do that?”  I agree, it’s totally crazy and I can’t explain why the FASB does anything that they do. Really, stop asking me to explain their behavior.

The upshot of this decision is that awards to nonemployees were subject to variable/mark-to-market/liability treatment until vested. And the accounting for situations in which individuals changed employment status were so complicated that no one really knew how it was supposed to work.

The FASB’s Decision

Around the same time that the FASB decided to simplify ASC 718, they also directed the staff to investigate whether it would make sense for awards granted to nonemployees to be included within the scope of ASC 718.  Now, a year and a half later, they have decided that this does make sense.

This means that once the amendment is finalized, awards granted to all nonemployees (consultants, independent contractors, leased employees, etc.) will be accounted for in the same manner as awards to employees.  No more complicated accounting when individuals change employment status (unless the individual’s awards are modified in connection with the change in status, in which case, modification accounting is still required). And there’s a bunch of even crazier stuff companies were supposed to be doing for nonemployee awards once the awards were vested and to account for performance conditions that no one seemed to know about; now we never need to know about that stuff.

Companies that are currently accounting for awards granted to nonemployees will use the modified retrospective method for the transition (which we are all now familiar with once again, because we had to figure it out for the simplification project, see “Update to ASC 718: Transition“).

Not So Fast

We still have a long ways to go on this. First, the FASB has to issue an exposure draft of the proposed amendment, we all have to read it and comment on it (oh joy), the FASB has to consider all our comments (or at least pretend to), the staff has to draft the final amendment, the FASB has to vote to approve it, and companies have to adopt it.  So you aren’t going to be changing how you account for awards to nonemployees anytime soon.

Thanks to Elizabeth Dodge of Equity Plan Solutions for bringing this to my attention and to Ken Stoler of PwC for translating the FASB’s accounting-speak for me.

– Barbara