Armanino Blog

New FASB ASU 2018-07 Guidance Simplifies the Equity Accounting Process

March 21, 2019

If your company grants equity to non-employees/consultants, this is exciting news because it simplifies your equity accounting process!

Updated Guidance that's helpful!
ASC 718 has expanded to now include non-employee and consultant grants within its scope. With the updated guidance under ASU 2018-07, employees and non-employees/consultant, will have the same overall treatment:

  • Equity classified option and awards are only required to be valued on grant date.
  • Non-employees/consultants no longer require Marked-to-Market at each reporting period end.

The Adoption Dates for ASU 2018-07

  • Public Companies: Fiscal years beginning after December 15, 2018 or interim periods for which financial statements have not yet been issued.
  • Private Companies:Fiscal years beginning after December 15, 2019 or if financial statements have not yet been made available for issuance. Private companies can choose to early adopt, but only if the company has already adopted ASC 606.
  • Adoption adjustments are calculated using the "modified retrospective approach." Only the portion of the unvested shares is included in the transition.
    • For adoption at the beginning of the fiscal year, the cumulative difference in the "to-date" expense for unvested shares is calculated.
    • For adoption during interim period, any expense already booked in prior interim periods during the fiscal year of adoption must be recalculated and trued-up.
    • The true-up will be calculated based on the adoption date fair value.
    • Any changes will result in a one-time cumulative adjustment made to Retained Earnings with an offset to Additional Paid in Capital.
  • The expected term for options can be calculated by using the contractual term (as previously done) or using the same guidance that applies to estimating expected term for employees' stock options.
    • The latter provision includes the option of using the simplified method if applicable.


If a company chooses to continue to use the contractual term, this may result in little to no adjustment to Retained Earnings but may result in a higher fair value and prospective recorded than otherwise. Conversely, electing to use an estimated expected term will likely yield a lower fair value and lower expense over the remainder service period, but also result in a one-time cumulative adjustment to Retained Earnings.

If you are a public company that is now required to adopt ASU 2018-07, or if you are a private company that would like to early adopt ASU 2018-07, Armanino can help. And we can utilize your current system as well!

Learn more about Equity Management Consulting.

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