The FASB issued ASU 2018-07 to simplify the accounting for non-employee stock-based compensation. The ASU expands the scope of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. It aligns much of the accounting for non-employee share-based payment transactions with the accounting for employee share-based compensation. Key changes include measuring equity-classified non-employee awards at grant date fair value, considering probability of performance conditions being met, and eliminating reassessment of award classification upon vesting for most awards. The ASU also provides measurement simplifications for nonpublic entities. It is effective for public entities for annual periods after December 15, 2018 and for other

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June 2018
FASB Simplifies Accounting for Non-employee Stock-based Compensation
The Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2018-07
Compensation—Stock Compensation (Topic 718) as part
of its Simplification Initiative to reduce complexity when
accounting for share-based payments to non-employees.
TheareasforsimplificationinASU2018-07involveseveral
aspects of the accounting for non-employee share-based
payment transactions resulting from expanding the scope
of Accounting Standards Codification (ASC) Topic 718,
Compensation—Stock Compensation, to include share-
based payment transactions for acquiring goods and
services from non-employees and aligning it with the
accounting for share-based payments to employees, with
certain exceptions.
Main Provisions
Upon adoption, an entity should apply the requirements
of Topic 718 to non-employee awards, except for specific
guidance on the period of time over which share-based
payment awards vest and the pattern of cost recognition
over that period, as discussed further below. The
amendments specify that Topic 718 now applies to all
share-based payment transactions in which a grantor
acquires goods or services to be used or consumed in a
grantor’s own operations by issuing share-based payment
awards.
Equity-classified non-employee awards are now
measured on the grant date by estimating the fair value
of the equity instruments to be issued. During the vesting
period, non-employee awards that contain a performance
condition that affects the quantity or other terms (e.g.,
exercise price) of the award should be measured based
on the outcome that is probable.
Entities may use the expected term to measure non-
employee awards, or elect to use the contractual term as
the expected term, on an award-by-award basis.
Nonpublic entities that measure their liability-classified
employee awards using the intrinsic value will need to use
the same approach to measure liability-classified non-
employee awards.
Entities are now required to reassess the classification of
a non-employee award (i.e., equity or debt) under other
US GAAP (e.g., ASC Topic 815, Derivatives and Hedging)
only if it is modified after it vests and the non-employee is
no longer providing goods or services, rather than once
performance is complete and the award vests.
ASU 2018-07 retains the current non-employee awards
cost attribution (i.e., recognition) guidance, to recognize
compensation cost for non-employee awards in the same
period and in the same manner they would if they paid
cash for the goods or services, but moves the guidance to
ASC 718. As a result, if the non-employee provides goods
or services at a point in time, the timing of recognition
for non-employee awards will continue to differ from the
timing of recognition for employee awards (recognized
ratably over the service period).
Similar to the accounting policy election for employee
awards the guidance allows entities to make an accounting
policy election to either account for forfeitures of non-
employee awards as they occur or estimate forfeitures

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MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that is a member firm of Kreston International Limited, a global network of independent accounting firms.
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and adjust the estimate when it is likely to change,
however the new guidance allows an entity to make
separate accounting policy elections for employee and
non-employee awards in this regard.
Summary of differences between Current
GAAP and ASU 2018-07
Measurement Date
Current GAAP: The measurement date for equity-
classified non-employee share-based payment awards
is the earlier of the date at which a commitment for
performance by the counterparty is reached and the date
at which the counterparty’s performance is complete.
Impact from ASU 2018-07: Equity-classified non-
employee share-based payment awards are measured
at the grant date. The definition of the term grant date is
amended to generally state the date at which a grantor
and a grantee reach a mutual understanding of the key
terms and conditions of a share-based payment award.
Awards with Performance Conditions
Current GAAP: Non-employee share-based payment
awards with performance conditions are measured at the
lowest aggregate fair value.
ImpactfromASU2018-07:Consistentwiththeaccounting
for employee share-based payment awards, an entity
considers the probability of satisfying performance
conditions when non-employee share-based payment
awards contain such conditions.
Classification Reassessment of Certain Equity-
Classified Awards
Current GAAP: Generally, the classification of equity-
classified non-employee share-based payment awards
is subject to other GAAP (for example, ASC Topic 815,
Derivatives and Hedging) once the good has been
delivered or the service has been rendered and any other
conditions necessary to earn the right to benefit from the
instruments have been satisfied. This often results in the
need to reassess the classification of such awards.
Impact from ASU 2018-07: Generally, the classification
of equity-classified non-employee share-based payment
awards will continue to be subject to the requirements
of Topic 718 unless modified after the good has been
delivered, the service has been rendered, any other
conditions necessary to earn the right to benefit from the
instruments have been satisfied, and the non-employee
is no longer providing goods or services. This eliminates
the requirement to reassess classification of such awards
upon vesting.
Nonpublic Entity-Specific Amendments
Calculated Value
Current GAAP: Inputs to the valuation of equity share
options and similar instruments issued to non-employees
include an estimate of the expected volatility.
Summary of Amendments: Historical volatility of an
appropriate industry-sector index is used by nonpublic
entities for expected volatilities as inputs to the valuation
of share options and similar instruments issued to non-
employees when it is not practicable for the nonpublic
entity to estimate the expected volatility of its share price.
Intrinsic Value
Current GAAP: Entities are required to measure liability-
classified non-employee share-based payment awards at
fair value.
Summary of Amendments: A nonpublic entity can
make a onetime election to switch from measuring
liability-classified non-employee share-based payment
awards at fair value to intrinsic value. Regardless of the
election, liability-classified awards would be subject to
remeasurement until exercise.

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MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that is a member firm of Kreston International Limited, a global network of independent accounting firms.
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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please
contact your MHM auditor to further discuss the impact on your audit or audit report.
Nonpublic Entity Practical Expedient
The new guidance allows nonpublic entities to use the
midpoint between the vesting date and the contractual
term as the expected term for certain non-employee
awards with service or performance conditions (even if
they use the contractual term to value other non-employee
awards), similar to the practical expedient available for
employee awards. ASU 2017-08 requires entities to use
the same accounting policy for awards to both employees
and non-employees.
Timing and Transition
The amendments in this Update are effective for
public business entities for fiscal years beginning after
December 15, 2018, including interim periods within that
fiscal year. For all other entities, the amendments are
effective for fiscal years beginning after December 15,
2019, and interim periods within fiscal years beginning
after December 15, 2020. Early adoption is permitted,
but no earlier than an entity’s adoption date of Topic 606,
Revenue from Contracts with Customers.
An entity should only remeasure liability-classified awards
that have not been settled by the date of adoption and
equity-classified awards for which a measurement date
has not been established through a cumulative-effect
adjustment to retained earnings as of the beginning of
the fiscal year of adoption. Upon transition, the entity is
required to measure these non-employee awards at fair
value as of the adoption date.
Assets in progress that include non-employee share-
based payment costs, such as work-in-process inventory
and construction-in-process, will be remeasured at the
adoption date. The entity must not remeasure assets
that are completed such as finished goods or equipment
placed in use.
Disclosures required at transition include the nature of
and reason for the change in accounting principle and, if
applicable, quantitative information about the cumulative
effect of the change on retained earnings or other
components of equity.
For More Information
If you have any specific questions, comments or concerns,
please share them with James Comito at jcomito@cbiz.
com or 858.795.2029 or Mark Winiarski at mwiniarski@
cbiz.com or 816.945.5614 of MHM’s Professional
Standards Group, or your MHM service professional.