The Financial Accounting Standards Board (FASB) recently approved the decision to apply ASC 718 — the accounting treatment that applies to equity awards granted to employees (and non-employee directors) — to equity awards granted to consultants and other individuals who are not employees.

Applying ASC 718 to Non-Employees

Previously, ASC 505-50 applied to equity awards that were granted to non employees. Under ASC 505-50, the vesting date — rather than the grant date — is generally the measurement date, which effectively requires the re-measurement of the award expense on a periodic basis until the award vests (i.e., less favorable accounting treatment than under ASC 718).

In addition, the FASB approved including in the final standard a rebuttable presumption that options granted to nonemployees should be valued based on the contractual term. This means companies are not foreclosed from using the expected value if it can be demonstrated that the awards are not transferable (or transferable only in limited circumstances) and the estimated expected life is supported by data from historical option grant activity.


The FASB is expected to issue the final Accounting Standard Update later this quarter, becoming effective for public companies for fiscal years beginning after December 15, 2018, and for nonpublic entities for fiscal years beginning after December 15, 2019. Early adoption is expected to be permitted.


As a result of the change in accounting treatment, companies may be more inclined to grant equity awards to consultants and other advisors. The change to the accounting rule also means that companies will not need to contend with a change in accounting treatment for an award held by an employee who changes status to a consultant or other form of non-employee advisor in connection with a termination of the employee’s employment.