9.2 Scope

ASC 718-10

Entities

15-2 The guidance in the Compensation — Stock Compensation Topic applies to all entities that enter into share-based payment transactions.

Transactions

15-3 The guidance in the Compensation—Stock Compensation Topic applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in the grantor’s own operations or provides consideration payable to a customer by issuing (or offering to issue) its shares, share options, or other equity instruments or by incurring liabilities to an employee or a nonemployee that meet either of the following conditions:

The amounts are based, at least in part, on the price of the entity’s shares or other equity instruments. (The phrase at least in part is used because an award of share-based compensation may be indexed to both the price of an entity’s shares and something else that is neither the price of the entity’s shares nor a market, performance, or service condition.)
The awards require or may require settlement by issuing the entity’s equity shares or other equity instruments.

Pending Content (Transition Guidance: ASC 718-10-65-17)

Issuing (or offering to issue) its shares, share options, or other equity instruments to an employee or a nonemployee
Incurring liabilities to an employee or a nonemployee that meet either of the following conditions:
1. The amounts are based, at least in part, on the price of the entity’s shares or other equity instruments. (The phrase at least in part is used because an award of share-based compensation may be indexed to both the price of an entity's shares and something else that is neither the price of the entity's shares nor a market, performance, or service condition.)
2. The awards require or may require settlement by issuing the entity’s equity shares or other equity instruments.

15-3A Paragraphs 323-10-25-3 through 25-5 provide guidance on accounting for share-based compensation granted by an investor to employees or nonemployees of an equity method investee that provide goods or services to the investee that are used or consumed in the investee’s operations.

Pending Content (Transition Guidance: ASC 718-10-65-17)

15-3B An entity shall apply the guidance in paragraph 718-10-15-3 to determine whether a profits interest or similar award is within the scope of this Topic. Paragraphs 718-10-55-138 through 55-148 illustrate how the guidance in paragraph 718-10-15-3 applies to common features in a profits interest or similar award.

15-4 Share-based payments awarded to a grantee by a related party or other holder of an economic interest in the entity as compensation for goods or services provided to the reporting entity are share-based payment transactions to be accounted for under this Topic unless the transfer is clearly for a purpose other than compensation for goods or services to the reporting entity. The substance of such a transaction is that the economic interest holder makes a capital contribution to the reporting entity, and that entity makes a share-based payment to the grantee in exchange for services rendered or goods received. An example of a situation in which such a transfer is not compensation is a transfer to settle an obligation of the economic interest holder to the grantee that is unrelated to goods or services to be used or consumed in a grantor’s own operations.

15-5 The guidance in this Topic does not apply to transactions involving share-based payment awards granted to a lender or an investor that provides financing to the issuer. However, see paragraphs 815-40-35-14 through 35-15, 815-40-35-18, 815-40-55-49, and 815-40-55-52 for guidance on an issuer’s accounting for modifications or exchanges of written call options to compensate grantees.

Subparagraph superseded by Accounting Standards Update No. 2018-07.
Subparagraph superseded by Accounting Standards Update No. 2019-08.
Subparagraph superseded by Accounting Standards Update No. 2019-08.

15-5A Share-based payment awards granted to a customer shall be measured and classified in accordance with the guidance in this Topic (see paragraph 606-10-32-25A) and reflected as a reduction of the transaction price and, therefore, of revenue in accordance with paragraph 606-10-32-25 unless the consideration is in exchange for a distinct good or service. If share-based payment awards are granted to a customer as payment for a distinct good or service from the customer, then an entity shall apply the guidance in paragraph 606-10-32-26.

Pending Content (Transition Guidance: ASC 606-10-65-2)

15-5A Share-based consideration granted to a customer (or to other parties that purchase the grantor’s goods or services from the customer) shall be measured and classified in accordance with the guidance in this Topic (see paragraph 606-10-32-25A) and reflected as a reduction of the transaction price and, therefore, of revenue in accordance with paragraph 606-10-32-25 unless the consideration is in exchange for a distinct good or service. If share-based payment awards are granted to a customer as payment for a distinct good or service from the customer, then the grantor shall apply the guidance in paragraph 606-10-32-26. See also paragraph 606-10-55-88AB.

15-5B A grantor shall not apply by analogy the aspects of the definition of performance condition that are specific to share-based consideration payable to a customer described in paragraph 606-10-55-88AA to awards granted to employees or nonemployees in which the grantor acquires goods or services to be used or consumed in the grantor’s own operations that are solely within the scope of the guidance in this Topic. See also paragraphs 606-10-55-88AB through 55-88AC.

ASC 718 applies to all share-based payment arrangements related to the acquisition of goods and services from employees and nonemployees. Therefore, most of the guidance in ASC 718 on employee share-based payments, including most of its requirements related to classification and measurement, applies to nonemployee share-based payment arrangements. However, it is still important to determine whether the counterparty (i.e., the grantee) is an employee or a nonemployee since there are certain differences in the respective guidance (see Section 9.1).

Entities are required to apply ASC 718 to measure and classify share-based consideration payable to a customer. However, ASC 606 addresses the recognition of share-based consideration payable to a customer (e.g., as a reduction of revenue). For information about accounting for share-based consideration payable to a customer, see Section 9.2.1 and Chapter 14.

ASC 718 does not address the accounting for share-based payments received by a vendor (grantee) from a customer (grantor). Such payments are subject to ASC 606, which addresses share-based payments received by a vendor in a contract with a customer. Under ASC 606, share-based payments (i.e., noncash consideration) received by a vendor (grantee) from a customer (grantor) are measured at their fair value at contract inception.

Changing Lanes

On July 23, 2024, the FASB issued a proposed ASU that would, in part, further clarify the scope of the guidance in ASC 815 to exclude share-based payments from a customer. Discussions related to this proposed ASU remain ongoing; however, we continue to believe that such payments should be accounted for under ASC 606. For more information, see Chapter 6 of Deloitte’s Roadmap Revenue Recognition.

ASC 718 also does not apply to equity instruments issued to a lender or investor that provides financing to the issuer. In paragraph BC21 of ASU 2018-07, the FASB clarified that ASC 718 applies to “instruments granted for goods or services used or consumed in a grantor’s own operations and does not apply to instruments granted essentially to provide financing to the issuer.” The Board included this anti-abuse measure to prevent entities from structuring a share-based payment transaction as a means of raising capital and accounting for it under ASC 718 (particularly its classification guidance).

9.2.1 Share-Based Consideration Payable to a Customer

ASC 718-10

Pending Content (Transition Guidance: ASC 606-10-65-2)

ASC 606-10

32-25 Consideration payable to a customer includes:

Cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity’s goods or services from the customer)
Credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity’s goods or services from the customer)
Equity instruments (liability or equity classified) granted in conjunction with selling goods or services (for example, shares, share options, or other equity instruments).

An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as described in paragraphs 606-10-25-18 through 25-22) that the customer transfers to the entity. If the consideration payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate of variable consideration is constrained) in accordance with paragraphs 606-10-32-5 through 32-13.

Pending Content (Transition Guidance: ASC 606-10-65-2)

32-25 Consideration payable to a customer includes:

Cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity’s goods or services from the customer)
Credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity’s goods or services from the customer)
Share-based consideration (liability or equity classified) granted to the customer (or to other parties that purchase the grantor’s goods or services from the customer) in conjunction with selling goods or services. Share-based consideration encompasses the same instruments as share-based payment arrangements (for example, shares, cash-settled stock appreciation rights, share options and warrants, or other equity instruments), but the grantee (as a customer) need not be a supplier of goods or services to the grantor.

An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as described in paragraphs 606-10-25-18 through 25-22) that the customer transfers to the entity. If the consideration payable to a customer (other than share-based consideration) includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate of variable consideration is constrained) in accordance with paragraphs 606-10-32-5 through 32-13. See paragraph 606-10-32-25A for guidance applicable to share-based consideration payable to a customer.

ASC 718 applies to the measurement and classification of share-based payment awards issued as consideration payable to a customer. If such consideration is not in exchange for a distinct good or service, ASC 606 requires that the consideration be reflected as a reduction of the transaction price. However, ASC 606-10-32-26 states, in part, that “[i]f consideration payable to a customer is a payment for a distinct good or service from the customer, then an entity shall account for the purchase of the good or service in the same way that it accounts for other purchases from suppliers.”

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.