USA Contingent Consulting Fees

[A Jones]

A start-up enters into a consulting agreement that provides for ongoing future fees for the consultant but also states that consulting fees for a prior period (starting a couple of years prior to the agreement when the consultant began work and ending with the date of the consulting agreement) will be paid in the event that the company closes a round of financing exceeding a certain amount. The consultant was previously compensated only through a stock option agreement and may have had the expectation (but was not promised) that they would eventually be paid for prior services if the company became fully funded or was acquired. The consultant's work is accounting-related and, although not directly related to achieving a qualifying financing event, the quality of service provided by the consultant could be reasonably expected impact the likelihood of success or failure of the financing event. Should the consulting fees for prior services be recorded when the agreement is signed, in accordance with ASC-450/contingent liability account (when it becomes probable that a qualifying financing event will take place) or when the financing event occurs?

 

[Fidget]

By the sounds of it there's a derivative going on here in that the consultant will be paid for prior years *if* a future event comes to pass. If it's probable that it will come to pass, then it's a disclosure note to your accounts (contingent liability).