9.7 Presentation

ASC 718-10

35-1B If fully vested, nonforfeitable equity instruments are granted at the date the grantor and nonemployee enter into an agreement for goods or services (no specific performance is required by the nonemployee to retain those equity instruments), then, because of the elimination of any obligation on the part of the nonemployee to earn the equity instruments, a grantor shall recognize the equity instruments when they are granted (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 718-10-45-3) depends on the specific facts and circumstances.

45-3 As discussed in paragraph 718-10-35-1B, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, nonforfeitable, nonemployee share-based payment awards that are issued at the date the grantor and nonemployee enter into an agreement for goods or services (and no specific performance is required by the nonemployee to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the award. The transferability (or lack thereof) of the awards shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which awards are transferred to nonemployees in exchange for goods or services.

If an entity receives a recourse note for the issuance of a share-based payment award, that note would generally be presented as contra-equity (see Section 12.1.1). However, if an entity receives an asset that is not a note or a receivable from a nonemployee supplier or service provider (e.g., an asset received in return for fully vested, nonforfeitable equity instruments), that asset should not be presented as contra-equity.

In addition, in an SEC staff announcement regarding ASC 505-50, the staff indicated that unvested, forfeitable instruments should be treated as unissued for accounting purposes until the future services are received. Although the SEC staff rescinded that announcement at the March 24, 2022, EITF meeting as a result of the FASB’s issuance of ASU 2018-07, we believe that the underlying principle remains applicable for unvested, forfeitable instruments issued for goods and services.

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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.