Summary of ASU 2018-07

In July 2018, FASB released an update to the Accounting Standards Codification. The update is titled Improvement to Nonemployee Share-based Payment Accounting. Below is a summary of our interpretations of the update and how the Carta team is working to ensure compliance.

Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Meaning that companies will value all equity classified awards at their grant-date under ASC718 and forgo revaluing the award after this date.

Scope of Changes

  • Entities are required to value non-employee awards under ASC718 but can still elect to use a different methodology for establishing the expected term or selecting the amortization method. 
  • Under ASC 718-10-30-10A, entities may elect to use the contractual term or the midpoint as the expected term when estimating the fair value of non-employee awards.
  • Additionally, under ASC 718-10-25-2C, the guidance states that entities are required to recognize compensation cost for non-employee awards as if they had been paid in cash. As such, entities may still elect to apply a different amortization method to non-employee awards.

All entities that have historically issued or are currently issuing share based compensation to non-employee will be affected by the update. 

Public entities must adopt the new standard in the fiscal year beginning on 12/15/2018. All other entities must adopt the new standard in the fiscal year beginning on 12/15/2019. Companies can early adopt the new standard but are required to adopt ASC Topic 606 alongside their adoption of ASU 2018-07.

For entities that have recorded historical expense for non-employee awards, the non-employee awards will need to be revalued on the date of adoption and a cumulative adjustment will be recorded to retained earnings. Companies will also need to disclose in their financial statements, the nature of and reason for the change in accounting principle, as well as any quantitative information about the cumulative adjustment's effect on retained earnings and other equity components.

How can Carta help?

We are currently scoping how we can assist our clients in implementing the new standard and will provide an update when have a viable solution. For more information or to discuss how you can early adopt the standard now, please reach out to

Full text of the ASU 2018-07 can be found on FASB's website at

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