ASC 718 requires compensation cost to be recognized over the employee’s requisite service period or the nonemployee’s vesting period. The requisite service period is the period during which the employee is required to provide services to earn the share-based payment award. The nonemployee’s vesting period is the period over which the cost of a nonemployee share-based payment award is recognized (i.e., the period the goods or services are provided). The service inception date, which is generally the grant date, is the beginning of the requisite service period or the nonemployee’s vesting period. Therefore, the service inception date is the date on which an entity begins to recognize compensation cost related to the share-based payments. For awards with only a service condition, the vesting period is generally the requisite service period or the nonemployee’s vesting period unless there are other substantive terms to the contrary. For nonemployee share-based payment awards, an entity should recognize compensation cost “when it obtains the goods or as services are received” and “in the same period(s) and in the same manner as if the grantor had paid cash for the goods or services instead of paying with or using the share-based payment award.” This is referred to within ASC 718 and this Roadmap as the “nonemployee’s vesting period.”
Determining the requisite service period is only applicable to employee awards. However, for certain nonemployee awards, an entity may analogize to the guidance on calculating a requisite service period and determining the service inception date when such guidance is relevant to the accounting for the nonemployee award. For additional discussion of a nonemployee’s vesting period, see Section 9.3.2.
There may be certain situations in which a service or performance condition does not affect the number of awards that vest and instead affects factors other than vesting, such as the exercise price or conversion ratio.