# ASC 718-10-25: Compensation—Stock Compensation — Overall — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/718/10/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:6d8b0442a1c16ad9e20116cbb99ad82a32f5fcaacbf5297e6159bfde1d439956 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 718-10-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/718/10/#25-recognition) SEC content: no ##### [718-10-25-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:98b3359007aec567fac580e5084a7068eed0fcc528c21f04bb9f77eff369d055 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Section is organized as follows: 1. a Recognition principle for [share-based payment transactions](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-transactions "A transaction under a share-based payment arrangement, including a transaction in which an entity acquires goods or services because related parties or other holders of economic interests in that entity awards a share-based payment to an employee or other supplier of goods or services for the entity's benefit. Also called share-based compensation transactions.") 2. b Determining the [grant date](https://asc.understandingaccounting.org/glossary/g/#grant-date "The date at which a grantor and a grantee reach a mutual understanding of the key terms and conditions of a share-based payment award. The grantor becomes contingently obligated on the grant date to issue equity instruments or transfer assets to a grantee who delivers goods or renders services or purchases goods or services as a customer. Awards made under an arrangement that is subject to shareholder approval are not deemed to be granted until that approval is obtained unless approval is essentially a formality (or perfunctory), for example, if management and the members of the board of directors control enough votes to approve the arrangement. Similarly, individual awards that are subject to approval by the board of directors, management, or both are not deemed to be granted until all such approvals are obtained. The grant date for an award of equity instruments is the date that a grantee begins to benefit from, or be adversely affected by, subsequent changes in the price of the grantor's equity shares. Paragraph 718-10-25-5 provides guidance on determining the grant date. See Service Inception Date.") 3. c Determining whether to classify a financial instrument as a liability or as equity 4. d [Market](https://asc.understandingaccounting.org/glossary/m/#market-condition "A condition affecting the exercise price, exercisability, or other pertinent factors used in determining the fair value of an award under a share-based payment arrangement that relates to the achievement of either of the following: A specified price of the issuer's shares or a specified amount of intrinsic value indexed solely to the issuer's shares A specified price of the issuer's shares in terms of a similar (or index of similar) equity security (securities). The term similar as used in this definition refers to an equity security of another entity that has the same type of residual rights. For example, common stock of one entity generally would be similar to the common stock of another entity for this purpose."), [performance](https://asc.understandingaccounting.org/glossary/p/#performance-condition "A condition affecting the vesting, exercisability, exercise price, or other pertinent factors used in determining the fair value of an award that relates to both of the following: Rendering service or delivering goods for a specified (either explicitly or implicitly) period of time Achieving a specified performance target that is defined solely by reference to the grantor's own operations (or activities) or by reference to the grantee's performance related to the grantor's own operations (or activities).Attaining a specified growth rate in return on assets, obtaining regulatory approval to market a specified product, selling shares in an initial public offering or other financing event, and a change in control are examples of performance conditions. A performance target also may be defined by reference to the same performance measure of another entity or group of entities. For example, attaining a growth rate in earnings per share (EPS) that exceeds the average growth rate in EPS of other entities in the same industry is a performance condition. A performance target might pertain to the performance of the entity as a whole or to some part of the entity, such as a division, or to the performance of the grantee if such performance is in accordance with the terms of the award and solely relates to the grantor's own operations (or activities).(P) December 16, 2026; (N) December 16, 2026606-10-65-2For share-based payments in which a grantor acquires goods or services to be used or consumed in the grantor’s own operations, a condition affecting the vesting, exercisability, exercise price, or other pertinent factors used in determining the fair value of an award that relates to both of the following: Rendering service or delivering goods for a specified (either explicitly or implicitly) period of time Achieving a specified performance target that is defined solely by reference to the grantor's own operations (or activities) or by reference to the grantee's performance related to the grantor's own operations (or activities).Attaining a specified growth rate in return on assets, obtaining regulatory approval to market a specified product, selling shares in an initial public offering or other financing event, and a change in control are examples of performance conditions. A performance target also may be defined by reference to the same performance measure of another entity or group of entities. For example, attaining a growth rate in earnings per share (EPS) that exceeds the average growth rate in EPS of other entities in the same industry is a performance condition. A performance target might pertain to the performance of the entity as a whole or to some part of the entity, such as a division, or to the performance of the grantee if such performance is in accordance with the terms of the award and solely relates to the grantor's own operations (or activities).For share-based consideration payable to a customer that can result in a reduction of the transaction price in accordance with Topic 606, a condition affecting the vesting, exercisability, exercise price, or other pertinent factors used in determining the fair value of an award that relates to any of the following:Achieving a specified performance target that is defined solely by reference to the grantor’s own operations (or activities) or by reference to the grantee’s (the customer’s) performance related to the grantor’s own operations (or activities)The grantee’s purchase (or potential purchase) of the grantor’s goods or services from either the grantor or the grantor’s customersA purchase (or potential purchase) of the grantor’s goods or services from either the grantee or the grantee’s customers.The performance targets listed in this definition for employee and nonemployee awards (for example, a change in control) are also examples of performance conditions for share-based consideration payable to a customer."), and [service conditions](https://asc.understandingaccounting.org/glossary/s/#service-condition "A condition affecting the vesting, exercisability, exercise price, or other pertinent factors used in determining the fair value of an award that depends solely on an employee rendering service to the employer for the requisite service period or a nonemployee delivering goods or rendering services to the grantor over a vesting period. A condition that results in the acceleration of vesting in the event of a grantee's death, disability, or termination without cause is a service condition.") 5. e [Subparagraph superseded by Accounting Standards Update No. 2012-04](https://asc.understandingaccounting.org/updates/asu-2012-04/). 6. f Payroll taxes. #### Recognition Principle for Share-Based Payment Transactions ##### [718-10-25-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:ad2161c6a65b840f8dfd148950ed1c69b83e32bdcb1eba6b367a05424165cb70 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall recognize the goods acquired or services received in a share-based payment transaction when it obtains the goods or as services are received, as further described in paragraphs [718-10-25-2A through 25-2B](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2A) . The entity shall recognize either a corresponding increase in equity or a liability, depending on whether the instruments granted satisfy the equity or liability classification criteria (see paragraphs [718-10-25-6 through 25-19A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-6)). ##### [718-10-25-2A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2A) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:1ff44d91356d012989bd0c09f6a830be5c6c501642ab28e588b62b9960d1cea5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Employee](https://asc.understandingaccounting.org/glossary/e/#employee "An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. Internal Revenue Service (IRS) Revenue Ruling 87-41. A reporting entity based in a foreign jurisdiction would determine whether an employee-employer relationship exists based on the pertinent laws of that jurisdiction. Accordingly, a grantee meets the definition of an employee if the grantor consistently represents that individual to be an employee under common law. The definition of an employee for payroll tax purposes under the U.S. Internal Revenue Code includes common law employees. Accordingly, a grantor that classifies a grantee potentially subject to U.S. payroll taxes as an employee also must represent that individual as an employee for payroll tax purposes (unless the grantee is a leased employee as described below). A grantee does not meet the definition of an employee solely because the grantor represents that individual as an employee for some, but not all, purposes. For example, a requirement or decision to classify a grantee as an employee for U.S. payroll tax purposes does not, by itself, indicate that the grantee is an employee because the grantee also must be an employee of the grantor under common law. A leased individual is deemed to be an employee of the lessee if all of the following requirements are met: The leased individual qualifies as a common law employee of the lessee, and the lessor is contractually required to remit payroll taxes on the compensation paid to the leased individual for the services provided to the lessee. The lessor and lessee agree in writing to all of the following conditions related to the leased individual: The lessee has the exclusive right to grant stock compensation to the individual for the employee service to the lessee. The lessee has a right to hire, fire, and control the activities of the individual. (The lessor also may have that right.) The lessee has the exclusive right to determine the economic value of the services performed by the individual (including wages and the number of units and value of stock compensation granted). The individual has the ability to participate in the lessee's employee benefit plans, if any, on the same basis as other comparable employees of the lessee. The lessee agrees to and remits to the lessor funds sufficient to cover the complete compensation, including all payroll taxes, of the individual on or before a contractually agreed upon date or dates. A nonemployee director does not satisfy this definition of employee. Nevertheless, nonemployee directors acting in their role as members of a board of directors are treated as employees if those directors were elected by the employer's shareholders or appointed to a board position that will be filled by shareholder election when the existing term expires. However, that requirement applies only to awards granted to nonemployee directors for their services as directors. Awards granted to those individuals for other services shall be accounted for as awards to nonemployees. (P) December 16, 2026; (N) December 16, 2026220-40-65-1An individual over whom a reporting entity exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. Internal Revenue Service (IRS) Revenue Ruling 87-41. A reporting entity based in a foreign jurisdiction would determine whether an employee-employer relationship exists based on the pertinent laws of that jurisdiction. Accordingly, an individual meets the definition of an employee if the reporting entity consistently represents that individual to be an employee under common law. The definition of an employee for payroll tax purposes under the U.S. Internal Revenue Code includes common law employees. Accordingly, a reporting entity that classifies an individual potentially subject to U.S. payroll taxes as an employee also must represent that individual as an employee for payroll tax purposes (unless the individual is a leased employee as described below). An individual that meets the definition of an employee includes, but is not limited to, a full-time, part-time, temporary, or seasonal employee. An individual does not meet the definition of an employee solely because the reporting entity represents that individual as an employee for some, but not all, purposes. For example, a requirement or decision to classify an individual as an employee for U.S. payroll tax purposes does not, by itself, indicate that the individual is an employee because the individual also must be an employee of the reporting entity under common law. A leased individual is deemed to be an employee of the lessee if all of the following requirements are met: The leased individual qualifies as a common law employee of the lessee, and the lessor is contractually required to remit payroll taxes on the compensation paid to the leased individual for the services provided to the lessee. The lessor and lessee agree in writing to all of the following conditions related to the leased individual: The lessee has the exclusive right to grant compensation to the individual for the employee service to the lessee. The lessee has a right to hire, fire, and control the activities of the individual. (The lessor also may have that right.) The lessee has the exclusive right to determine the economic value of the services performed by the individual (including wages and the number of units and value of stock compensation granted). The individual has the ability to participate in the lessee's employee benefit plans, if any, on the same basis as other comparable employees of the lessee. The lessee agrees to and remits to the lessor funds sufficient to cover the complete compensation, including all payroll taxes, of the individual on or before a contractually agreed upon date or dates. A nonemployee director does not satisfy this definition of employee. Nevertheless, nonemployee directors acting in their role as members of a board of directors are treated as employees if those directors were elected by the employer's shareholders or appointed to a board position that will be filled by shareholder election when the existing term expires. However, that requirement applies only to awards and other compensation granted to nonemployee directors for their services as directors. Awards granted and compensation paid to those individuals for other services shall be accounted for as awards and compensation to nonemployees.") services themselves are not recognized before they are received. As the services are consumed, the entity shall recognize the related cost. For example, as services are consumed, the cost usually is recognized in determining net income of that period, for example, as expenses incurred for employee services. In some circumstances, the cost of services may be initially capitalized as part of the cost to acquire or construct another asset, such as inventory, and later recognized in the income statement when that asset is disposed of or consumed. This Topic refers to recognizing compensation cost rather than compensation expense because any compensation cost that is capitalized as part of the cost to acquire or construct an asset would not be recognized as compensation expense in the income statement. ##### [718-10-25-2B](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2B) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:b890163b88325b75ff95589eb24393804c6ce9f6080d63f08c268271d3812a17 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transactions with nonemployees in which share-based payment awards are granted in exchange for the receipt of goods or services may involve a contemporaneous exchange of the share-based payment awards for goods or services or may involve an exchange that spans several financial reporting periods. Furthermore, by virtue of the terms of the exchange with the grantee, the quantity and terms of the share-based payment awards to be granted may be known or not known when the transaction arrangement is established because of specific conditions dictated by the agreement (for example, performance conditions). Judgment is required in determining the period over which to recognize cost, otherwise known as the nonemployee's vesting period. ##### [718-10-25-2C](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2C) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:fa5d3ed69d3e39c475ba8c9aecdd29cee23bf71916bee57044601caa9921ccff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance does not address the period(s) or the manner (that is, capitalize versus expense) in which an entity granting the share-based payment award (the purchaser or grantor) to a nonemployee shall recognize the cost of the share-based payment award that will be issued, other than to require that an asset or expense be recognized (or previous recognition reversed) in the same period(s) and in the same manner as if the grantor had paid cash for the goods or services instead of paying with or using the share-based payment award. A share-based payment award granted to a customer shall be reflected as a reduction of the transaction price and, therefore, of revenue as described in paragraph [606-10-32-25](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-25) unless the payment to the customer is in exchange for a distinct good or service, in which case the guidance in paragraph [606-10-32-26](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-26) shall apply. ##### [718-10-25-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:eec6d2e5fe15c38fc18a584275e1cd3ac7b3c738f859b923544d06efcf6cc0c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The accounting for all share-based payment transactions shall reflect the rights conveyed to the holder of the instruments and the obligations imposed on the issuer of the instruments, regardless of how those transactions are structured. For example, the rights and obligations embodied in a transfer of equity shares for a note that provides no recourse to other assets of the grantee (that is, other than the shares) are substantially the same as those embodied in a grant of equity share options. Thus, that transaction shall be accounted for as a substantive grant of equity share options. ##### [718-10-25-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:235415342f45847bf575cdb1c5a5591d53f7df18c40fb46f1f942c499560ddef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assessment of both the rights and obligations in a share-based payment [award](https://asc.understandingaccounting.org/glossary/a/#award "The collective noun for multiple instruments with the same terms and conditions granted at the same time either to a single grantee or to a group of grantees. An award may specify multiple vesting dates, referred to as graded vesting, and different parts of an award may have different expected terms. References to an award also apply to a portion of an award.") and any related arrangement and how those rights and obligations affect the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.") of an award requires the exercise of judgment in considering the relevant facts and circumstances. #### Determining the Grant Date ##### [718-10-25-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:cf4736da10042e4ce8974ec3a5879ea9ce3c31f428107189f42fab0de3e4c176 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As a practical accommodation, in determining the grant date of an award subject to this Topic, assuming all other criteria in the grant date definition have been met, a mutual understanding of the key terms and conditions of an award to an individual grantee shall be presumed to exist at the date the award is approved in accordance with the relevant corporate governance requirements (that is, by the Board or management with the relevant authority) if both of the following conditions are met: 1. a The award is a unilateral grant and, therefore, the recipient does not have the ability to negotiate the key terms and conditions of the award with the grantor. 2. b The key terms and conditions of the award are expected to be communicated to an individual recipient within a relatively short time period from the date of approval. A relatively short time period is that period in which an entity could reasonably complete all actions necessary to communicate the awards to the recipients in accordance with the entity's customary practices. For additional guidance see paragraphs [718-10-55-80 through 55-83](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-80) . #### Determining Whether to Classify a Financial Instrument as a Liability or as Equity ##### [718-10-25-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:6aa50b65d6c5091dcbcae599aaace9874c0f5ac453cfa9660d12d10b7fcfae76 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This paragraph through paragraph [718-10-25-19A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-19A) provide guidance for determining whether certain financial instruments awarded in share-based payment transactions are liabilities. In determining whether an instrument not specifically discussed in those paragraphs shall be classified as a liability or as equity, an entity shall apply generally accepted accounting principles (GAAP) applicable to financial instruments issued in transactions not involving share-based payment. ##### [718-10-25-7](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:3f0fa2d9d7e522ec69f25dd1898b2c25db40412bd44414627633daed70a4855b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Topic 480 excludes from its scope instruments that are accounted for under this Topic. Nevertheless, unless paragraphs [718-10-25-8 through 25-19A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-8) require otherwise, an entity shall apply the classification criteria in Section 480-10-25 and paragraphs [480-10-15-3 through 15-4](https://asc.understandingaccounting.org/asc/480/10/#480-10-15-3) in determining whether to classify as a liability a [freestanding financial instrument](https://asc.understandingaccounting.org/glossary/f/#freestanding-financial-instrument "A financial instrument that meets either of the following conditions: It is entered into separately and apart from any of the entity's other financial instruments or equity transactions. It is entered into in conjunction with some other transaction and is legally detachable and separately exercisable.") given to a grantee in a share-based payment transaction. Paragraphs [718-10-35-9 through 35-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-9) provide criteria for determining when instruments subject to this Topic subsequently become subject to Topic 480 or to other applicable GAAP. ##### [718-10-25-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:9fbb0594121bb312c960fff0f26d7de0bb925122c035f26f82ff6af68389f548 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In determining the classification of an instrument, an entity shall take into account the classification requirements as established by Topic 480. In addition, a [call option](https://asc.understandingaccounting.org/glossary/c/#call-option "A contract that allows the holder to buy a specified quantity of stock from the writer of the contract at a fixed price for a given period. See Option and Purchased Call Option.") written on an instrument that is not classified as a liability under those classification requirements (for example, a call option on a mandatorily redeemable share for which liability classification is not required for the specific entity under the requirements) also shall be classified as equity so long as those equity classification requirements for the entity continue to be met, unless liability classification is required under the provisions of paragraphs [718-10-25-11 through 25-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-11) . ##### [718-10-25-9](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:8d6bc9ae4b48e9ba657e8759aa068614ede72b75003a0c890974a531b5108b6b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Topic 480 does not apply to outstanding shares embodying a conditional obligation to transfer assets, for example, shares that give the grantee the right to require the grantor to repurchase them for cash equal to their fair value (puttable shares). A put right may be granted to the grantee in a transaction that is related to a share-based compensation arrangement. If exercise of such a put right would require the entity to repurchase shares [issued](https://asc.understandingaccounting.org/glossary/i/#issued-issuance-or-issuing-of-an-equity-instrument "An equity instrument is issued when the issuing entity receives the agreed-upon consideration, which may be cash, an enforceable right to receive cash, or another financial instrument, goods, or services. An entity may conditionally transfer an equity instrument to another party under an arrangement that permits that party to choose at a later date or for a specified time whether to deliver the consideration or to forfeit the right to the conditionally transferred instrument with no further obligation. In that situation, the equity instrument is not issued until the issuing entity has received the consideration. The grant of stock options or other equity instruments subject to vesting conditions is not considered to be issuance.") under the share-based compensation arrangement, the shares shall be accounted for as puttable shares. A puttable (or callable) share awarded to a grantee as compensation shall be classified as a liability if either of the following conditions is met: 1. a The repurchase feature permits the grantee to avoid bearing the risks and rewards normally associated with equity share ownership for a reasonable period of time from the date the good is delivered or the service is rendered and the share is issued. A grantee begins to bear the risks and rewards normally associated with equity share ownership when all the goods are delivered or all the service has been rendered and the share is issued. A repurchase feature that can be exercised only upon the occurrence of a contingent event that is outside the grantee's control (such as an initial public offering) would not meet this condition until it becomes [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that the event will occur within the reasonable period of time. 2. b It is probable that the grantor would prevent the grantee from bearing those risks and rewards for a reasonable period of time from the date the share is issued. For this purpose, a period of six months or more is a reasonable period of time. ##### [718-10-25-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:9719bb70112997a13d16918387119166d75a0e5d15a1f5a986521a80f21e0ba3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A puttable (or callable) share that does not meet either of those conditions shall be classified as equity (see paragraph [718-10-55-85](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-85)). ##### [718-10-25-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:108d1f6c8f38177834c6cdb2d9ad8976f9cf79fcc8b50ab627ba20a429e2ae3d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Options or similar instruments on shares shall be classified as liabilities if either of the following conditions is met: 1. a The underlying shares are classified as liabilities. 2. b The entity can be required under any circumstances to [settle](https://asc.understandingaccounting.org/glossary/s/#settlement-of-an-award "An action or event that irrevocably extinguishes the issuing entity's obligation under a share-based payment award. Transactions and events that constitute settlements include the following: Exercise of a share option or lapse of an option at the end of its contractual term Vesting of shares Forfeiture of shares or share options due to failure to satisfy a vesting condition An entity's repurchase of instruments in exchange for assets or for fully vested and transferable equity instruments. The vesting of a share option is not a settlement because the entity remains obligated to issue shares upon exercise of the option.") the option or similar instrument by transferring cash or other assets. A cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the grantee's control (such as an initial public offering) would not meet this condition until it becomes probable that event will occur. ##### [718-10-25-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:0a945bc49bc284e9dc1a127bfa43645f8b3819cb988e4adb6743c3f7d058c0b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, a [Securities and Exchange Commission (SEC) registrant](https://asc.understandingaccounting.org/glossary/s/#securities-and-exchange-commission-registrant "An entity (or an entity that is controlled by an entity) that meets any of the following criteria: It has issued or will issue debt or equity securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets). It is required to file financial statements with the Securities and Exchange Commission (SEC). It provides financial statements for the purpose of issuing any class of securities in a public market.") may grant an option to a grantee that, upon exercise, would be settled by issuing a mandatorily redeemable share. Because the mandatorily redeemable share would be classified as a liability under Topic 480, the option also would be classified as a liability. ##### [718-10-25-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:c3ba3a91324df3c4be04696eb611155188645adc3d9bc6e4bc922d50fc99de94 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An award may be indexed to a factor in addition to the entity's share price. If that additional factor is not a market, performance, or service condition, the award shall be classified as a liability for purposes of this Topic, and the additional factor shall be reflected in estimating the fair value of the award. Paragraph [718-10-55-65](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-65) provides examples of such awards. ##### [718-10-25-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:5778012ab297dac091ea22dec36293ed6324761e7ca796c29f82b8695f21b211 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For this purpose, an award of equity share options granted to a grantee of an entity's foreign operation that provides for a fixed exercise price denominated either in the foreign operation's functional currency or in the currency in which the foreign operation's employee's pay is denominated shall not be considered to contain a condition that is not a market, performance, or service condition. Therefore, such an award is not required to be classified as a liability if it otherwise qualifies as equity. For example, equity share options with an exercise price denominated in euros granted to employees or nonemployees of a U.S. entity's foreign operation whose functional currency is the euro are not required to be classified as liabilities if those options otherwise qualify as equity. In addition, options granted to employees and nonemployees are not required to be classified as liabilities even if the functional currency of the foreign operation is the U.S. dollar, provided that the foreign operation's employees are paid in euros. ##### [718-10-25-14A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-14A) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:a013bf23f909b47e848ecfd9d9bce85f79bc0cbb0c56cdaf526a24e6a52ad3d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of applying paragraph [718-10-25-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-13), a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades shall not be considered to contain a condition that is not a market, performance, or service condition. Therefore, in accordance with that paragraph, such an award shall not be classified as a liability if it otherwise qualifies for equity classification. For example, a parent entity whose functional currency is the Canadian dollar grants equity share options with an exercise price denominated in U.S. dollars to grantees of a Canadian entity with the functional and payroll currency of the Canadian dollar. If a substantial portion of the parent entity's equity securities trades on a U.S. dollar denominated exchange, the options are not precluded from equity classification. ##### [718-10-25-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:f7aea41604152151c7ef76f4159196d0ffbdb9683de568a8bfb0ffe8455305a4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The accounting for an award of share-based payment shall reflect the substantive terms of the award and any related arrangement. Generally, the written terms provide the best evidence of the substantive terms of an award. However, an entity's past practice may indicate that the substantive terms of an award differ from its written terms. For example, an entity that grants a [tandem award](https://asc.understandingaccounting.org/glossary/t/#tandem-award "An award with two or more components in which exercise of one part cancels the other(s).") under which a grantee receives either a stock option or a cash-settled stock appreciation right is obligated to pay cash on demand if the choice is the grantee's, and the entity thus incurs a liability to the grantee. In contrast, if the choice is the entity's, it can avoid transferring its assets by choosing to settle in stock, and the award qualifies as an equity instrument. However, if an entity that nominally has the choice of settling awards by issuing stock predominantly settles in cash or if the entity usually settles in cash whenever a grantee asks for cash settlement, the entity is settling a substantive liability rather than repurchasing an equity instrument. In determining whether an entity that has the choice of settling an award by issuing equity shares has a substantive liability, the entity also shall consider whether: 1. a It has the ability to deliver the shares. (Requirements to deliver registered shares do not, by themselves, imply that an entity does not have the ability to deliver shares and thus do not require an award that otherwise qualifies as equity to be classified as a liability.) 2. b It is required to pay cash if a contingent event occurs (see paragraphs [718-10-25-11 through 25-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-11) ). ##### [718-10-25-16](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:72be0154bc6b43227bd428493b5500a3ef9c3660268d61da1fb1185b0767eaa5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A provision that permits grantees to effect a [broker-assisted cashless exercise](https://asc.understandingaccounting.org/glossary/b/#broker-assisted-cashless-exercise "The simultaneous exercise by a grantee of a share option and sale of the shares through a broker (commonly referred to as a broker-assisted exercise). Generally, under this method of exercise: The grantee authorizes the exercise of an option and the immediate sale of the option shares in the open market. On the same day, the entity notifies the broker of the sale order. The broker executes the sale and notifies the entity of the sales price. The entity determines the minimum statutory tax-withholding requirements. By the settlement day (generally three days later), the entity delivers the stock certificates to the broker. On the settlement day, the broker makes payment to the entity for the exercise price and the minimum statutory withholding taxes and remits the balance of the net sales proceeds to the grantee.") of part or all of an award of [share options](https://asc.understandingaccounting.org/glossary/s/#share-option "A contract that gives the holder the right, but not the obligation, either to purchase (to call) or to sell (to put) a certain number of shares at a predetermined price for a specified period of time.") through a broker does not result in liability classification for instruments that otherwise would be classified as equity if both of the following criteria are satisfied: 1. a The cashless exercise requires a valid exercise of the share options. 2. b The grantee is the legal owner of the shares subject to the option (even though the grantee has not paid the exercise price before the sale of the shares subject to the option). ##### [718-10-25-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:73e1b85857d56f556887f78404d3c54307454208a3533a404e84d0bc15b7754f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A broker that is a [related party](https://asc.understandingaccounting.org/glossary/r/#related-parties "Related parties include: Affiliates of the entity Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management Principal owners of the entity and members of their immediate families Management of the entity and members of their immediate families Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.") of the entity must sell the shares in the open market within a normal settlement period, which generally is three days, for the award to qualify as equity. ##### [718-10-25-18](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:a8da28fe73a41edd6729895b0f803404f72bf9f6a17c9d0155e58b63fd8073b4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Similarly, a provision for either direct or indirect (through a net-settlement feature) repurchase of shares issued upon exercise of options (or the vesting of [nonvested shares](https://asc.understandingaccounting.org/glossary/n/#nonvested-shares "Shares that an entity has not yet issued because the agreed-upon consideration, such as the delivery of specified goods or services and any other conditions necessary to earn the right to benefit from the instruments, has not yet been satisfied. Nonvested shares cannot be sold. The restriction on sale of nonvested shares is due to the forfeitability of the shares if specified events occur (or do not occur).")), with any payment due employees withheld to meet the employer's statutory withholding requirements resulting from the exercise, does not, by itself, result in liability classification of instruments that otherwise would be classified as equity. However, if the amount that is withheld, or may be withheld at the employee's discretion, is in excess of the maximum statutory tax rates in the employees' applicable jurisdictions, the entire award shall be classified and accounted for as a liability. That is, to qualify for equity classification, the employer must have a statutory obligation to withhold taxes on the employee's behalf, and the amount withheld cannot exceed the maximum statutory tax rates in the employees' applicable jurisdictions. The maximum statutory tax rates are based on the applicable rates of the relevant tax authorities (for example, federal, state, and local), including the employee's share of payroll or similar taxes, as provided in tax law, regulations, or the authority's administrative practices, not to exceed the highest statutory rate in that jurisdiction, even if that rate exceeds the highest rate that may be applicable to the specific award grantee. ##### [718-10-25-19](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:31b4eb9c79cad58ead008ba2cbfd57c0771c2453e2e0f2a7773a7829417c3da9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-09](https://asc.understandingaccounting.org/updates/asu-2016-09/). ##### [718-10-25-19A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-19A) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:801ca13f5f14d86a8e8fdac34c08523a3f651bfe02a9a9cbeae638efafabb374 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [230-10-45-15](https://asc.understandingaccounting.org/asc/230/10/#230-10-45-15) provides guidance on the classification on the statement of cash flows for cash paid to a tax authority by an employer when withholding shares from an employee's award for tax-withholding purposes. #### Market, Performance, and Service Conditions ##### [718-10-25-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:4bcec45a50921a3e424979e3f1fe212b2c701bf220979e0e2d18c23de4d58e41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Accruals of compensation cost for an award with a [performance condition](https://asc.understandingaccounting.org/glossary/p/#performance-condition "A condition affecting the vesting, exercisability, exercise price, or other pertinent factors used in determining the fair value of an award that relates to both of the following: Rendering service or delivering goods for a specified (either explicitly or implicitly) period of time Achieving a specified performance target that is defined solely by reference to the grantor's own operations (or activities) or by reference to the grantee's performance related to the grantor's own operations (or activities).Attaining a specified growth rate in return on assets, obtaining regulatory approval to market a specified product, selling shares in an initial public offering or other financing event, and a change in control are examples of performance conditions. A performance target also may be defined by reference to the same performance measure of another entity or group of entities. For example, attaining a growth rate in earnings per share (EPS) that exceeds the average growth rate in EPS of other entities in the same industry is a performance condition. A performance target might pertain to the performance of the entity as a whole or to some part of the entity, such as a division, or to the performance of the grantee if such performance is in accordance with the terms of the award and solely relates to the grantor's own operations (or activities).(P) December 16, 2026; (N) December 16, 2026606-10-65-2For share-based payments in which a grantor acquires goods or services to be used or consumed in the grantor’s own operations, a condition affecting the vesting, exercisability, exercise price, or other pertinent factors used in determining the fair value of an award that relates to both of the following: Rendering service or delivering goods for a specified (either explicitly or implicitly) period of time Achieving a specified performance target that is defined solely by reference to the grantor's own operations (or activities) or by reference to the grantee's performance related to the grantor's own operations (or activities).Attaining a specified growth rate in return on assets, obtaining regulatory approval to market a specified product, selling shares in an initial public offering or other financing event, and a change in control are examples of performance conditions. A performance target also may be defined by reference to the same performance measure of another entity or group of entities. For example, attaining a growth rate in earnings per share (EPS) that exceeds the average growth rate in EPS of other entities in the same industry is a performance condition. A performance target might pertain to the performance of the entity as a whole or to some part of the entity, such as a division, or to the performance of the grantee if such performance is in accordance with the terms of the award and solely relates to the grantor's own operations (or activities).For share-based consideration payable to a customer that can result in a reduction of the transaction price in accordance with Topic 606, a condition affecting the vesting, exercisability, exercise price, or other pertinent factors used in determining the fair value of an award that relates to any of the following:Achieving a specified performance target that is defined solely by reference to the grantor’s own operations (or activities) or by reference to the grantee’s (the customer’s) performance related to the grantor’s own operations (or activities)The grantee’s purchase (or potential purchase) of the grantor’s goods or services from either the grantor or the grantor’s customersA purchase (or potential purchase) of the grantor’s goods or services from either the grantee or the grantee’s customers.The performance targets listed in this definition for employee and nonemployee awards (for example, a change in control) are also examples of performance conditions for share-based consideration payable to a customer.") shall be based on the [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") outcome of that performance condition—compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved. If an award has multiple performance conditions (for example, if the number of options or shares a grantee earns varies depending on which, if any, of two or more performance conditions is satisfied), compensation cost shall be accrued if it is probable that a performance condition will be satisfied. In making that assessment, it may be necessary to take into account the interrelationship of those performance conditions. Example 2 (see paragraph [718-20-55-35](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-35)) provides an illustration of how to account for awards with multiple performance conditions. ##### [718-10-25-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:cba713bbcb2f71e901d1e98a4e6e3f5aa9549063d111d5fca8bdc20bdde1beea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an award requires satisfaction of one or more market, performance, or service conditions (or any combination thereof), compensation cost shall be recognized if the good is delivered or the service is rendered, and no compensation cost shall be recognized if the good is not delivered or the service is not rendered. Paragraphs [718-10-55-60 through 55-63](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-60) provide guidance on applying this provision to awards with market, performance, or service conditions (or any combination thereof). #### Payroll Taxes ##### [718-10-25-22](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:1a369f2f818761836c48e5e5eb25d74bdca5c69d20c4a5925d34efa361feee39 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A liability for employee payroll taxes on employee stock compensation shall be recognized on the date of the event triggering the measurement and payment of the tax to the taxing authority (for a nonqualified option in the United States, generally the exercise date). ##### [718-10-25-23](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:03:31.321Z to 2026-09-10T01:03:31.321Z Record version: sha256:4a0a3be64ca2a0d4a02f44e08655c83eaf898c092388b8fadbf80d0891c21455 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Payroll taxes, even though directly related to the appreciation on stock options, are operating expenses and shall be reflected as such in the statement of operations.