Compensation: Stock Compensation, ASC 718

SFAS No. 123R, Revised in December 2004
“Share-Based Payment”

Recognition Principle
Recognize when goods and services are received.

(a) Awards classified as equity
(b) Awards classified as liabilities

Awards classified as equity
Measurement date: Grant date

Measurement principle
(a) Employees –> Measured at Fair Value (FV) of Equity Instruments issued
(b) Nonemployees
–> FV of Equity Instruments issued
–> FV of goods and services if more reliably measured

Compensation costs are recognized over the requisite service period.

Awards classified as liabilities
Measurement date: Settlement date

Measurement principle
–> Measured at FV of liabilities
–> Remeasured at each reporting date
–> Until settlement date

Changes in FV of liabilities are recognized as compensation costs

Nonpublic entities have a choice of (a) or (b)
(a) FV of liabilities: preferable
(b) Intrinsic value

If requisite service is rendered, but options are not exercised
–> previously recognized compensation costs are not reversed

If performance conditions are satisfied, but market conditions are not satisfied
–> previously recognized compensation costs are not reversed
–> market conditions are not considered as vesting conditions

Reload options are not considered in determining the FV at grant date
–> subsequent grant is treated as a separate award




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