The Financial Accounting Standards Board released an accounting standards update Wednesday to improve the financial reporting for share-based payments from companies to people who aren’t employees, such as suppliers and service providers.

The standards update expands the scope of Topic 718, Compensation—Stock Compensation, which now covers only share-based payments to employees, to also include share-based payments that have been issued to nonemployees for goods or services. That way, the accounting for share-based payments to nonemployees and employees will be substantially aligned, in accordance with FASB’s Simplification Initiative. It supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees.

“Stakeholders recommended that the FASB improve the accounting for nonemployee share-based payments to reduce cost and complexity to apply the guidance, while improving the financial reporting for these transactions,” said FASB Chairman Russell G. Golden in a statement. “This standard will make it easier for companies to account for the share-based payments they provide to service providers, suppliers and other people that are not employees.”

The changes take effect for public companies for fiscal years starting after Dec. 15, 2018, including interim periods within that fiscal year. For all other companies, the amendments take effect for fiscal years starting after Dec. 15, 2019, and interim periods within fiscal years beginning after Dec. 15, 2020. Early adoption is allowed, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers.

In addition to the complete ASU, FASB has also posted a FASB in Focus overview on its website.

FASB, GASB and FAF logos on the wall at headquarters in Norwalk, Connecticut
Courtesy of GASB

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