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Stock-based compensation issued to nonemployees in an exchange for goods and/or services provided by the nonemployee are covered by ASC 505-50 until the services have been provided or the good delivered. Once performance has been completed, the stock-based compensation is subject to accounting under ASC 815.

The concept here is that until there is performance, the stock-based compensation contract may not be enforced by the nonemployee, so the derivative accounting measurement and recognition rules of 815 should not be applied. Once there is performance, however, the stock-based compensation instrument (or instruments) are no different than any other contract with similar terms and conditions and should not be afforded special accounting treatment, so ASC 815 should be applied. ASC 815-40-15-2 states that its guidance does not apply to, “…Contracts that are issued to acquire goods and services from nonemployees when performance has not yet occurred…” To further enforce this scope point, ASC 815-40-55-1 states that contract specifically within the scope of ASC 815-40-55 (Implementation Guidance) include, “…contracts issued to acquire goods and services from nonemployees when performance has occurred.”

Capital raising is frequently done with the assistance of a broker or some other compensated intermediary. Compensation (e.g., commission) is often a combination of cash and one or more equity-linked instruments (e.g., warrants). Broker responsibilities are usually complete upon closing of the capital raise and any stock-based compensation arising from the transaction would therefore be subject to ASC 815.

So, bottom line, if the instrument you are analyzing is nonemployee stock-based compensation and there has been performance by the nonemployee, then ASC 815 applies and you should answer this question ‘Yes’.

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