# ASC 718-10: Compensation—Stock Compensation — Overall

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/718/10/)

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): 2026-09-10T01:03:15.807Z to 2026-09-10T01:04:29.503Z

Record version: sha256:7a2e07371aae6d3abbefc2a68c31919eb2ec37508adb6384efa4b033d7cc2e46

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10: Compensation—Stock Compensation — Overall

### Machine-generated study aids

```json
{
  "summary": "ASC 718-10 is the \"Overall\" subtopic for share-based payment arrangements, setting the pervasive scope, recognition, measurement, classification, and disclosure principles that apply to both equity- and liability-classified awards granted to employees and nonemployees (and, by cross-reference, to customers). Its core rule is that cost must be recognized for all share-based payment transactions using a fair-value-based measurement method, generally grant-date fair value of the equity instruments issued (or fair value of liabilities incurred), recognized as the goods are obtained or services are received (718-10-10-2; 718-10-25-2; 718-10-30-3). Classification as liability or equity follows Topic 480 criteria as modified by 718-10-25-8 through 25-19A, and performance conditions are accrued based on the probable outcome while market conditions are reflected in grant-date fair value.",
  "key_points": [
    "Scope covers all entities and all transactions in which a grantor acquires goods or services (or provides consideration payable to a customer) by issuing shares, share options, or other equity instruments, or by incurring liabilities whose amount is based at least in part on the entity's share price or that may require settlement in the entity's equity shares (718-10-15-2 through 15-3); awards to lenders/investors providing financing are excluded (718-10-15-5) and ESOP-held equity instruments are outside the Overall Subtopic (718-10-15-7).",
    "Recognition: the entity recognizes the goods acquired or services received when it obtains the goods or as services are received, with a corresponding credit to equity or a liability; services are never recognized before received, and cost may be capitalized into another asset (hence 'compensation cost,' not 'expense') (718-10-25-2 through 25-2A).",
    "Measurement objective is grant-date fair value of the equity instruments issued (or fair value of liabilities incurred), net of any amount the grantee pays for the instrument; option fair value uses an observable market price if available, otherwise an option-pricing model (718-10-30-3, 30-6, 30-7, 30-9).",
    "Classification applies Topic 480 criteria as modified: puttable/callable shares are liabilities if the grantee can avoid the risks and rewards of ownership for a reasonable period (six months or more) or the grantor probably will prevent that (718-10-25-9); options are liabilities if the underlying shares are liabilities or the entity can be required to settle in cash (718-10-25-11); indexation to a factor that is not a market, performance, or service condition forces liability classification (718-10-25-13).",
    "Substance over form governs: accounting reflects the rights conveyed and obligations imposed regardless of structure, and a practice of cash settlement creates a substantive liability even if written terms give the entity a share-settlement choice (718-10-25-3, 25-15); withholding in excess of the maximum statutory tax rates in the employee's jurisdiction requires liability classification of the entire award (718-10-25-18).",
    "Conditions: cost for a performance condition is accrued based on the probable outcome (718-10-25-20); performance and service conditions affecting vesting are excluded from grant-date fair value but a market condition is reflected in it, so cost is recognized for a market-condition award as long as the requisite service is rendered even if the condition is never satisfied (718-10-30-14, 30-27, 35-4).",
    "Cost is recognized over the requisite service period (explicit, implicit, or derived) based on the number of instruments for which requisite service is rendered, with an entity-wide policy election to estimate forfeitures or recognize them as they occur (718-10-35-1D, 35-2, 35-3); graded-vesting service-only awards may be attributed as in-substance multiple awards or straight-line over the whole award, but recognized cost must at least equal the vested portion (718-10-35-8)."
  ],
  "categories": [
    "Stock compensation",
    "Compensation and benefits",
    "Recognition",
    "Initial measurement"
  ],
  "audience_level": "intermediate",
  "student_note": "ASC 718-10 is heavily tested because it forces you to separate two distinct questions: how the award is classified (equity vs. liability) and how conditions affect measurement versus recognition. The classic misunderstanding is treating market conditions like performance conditions—market conditions are priced into grant-date fair value and cost is not reversed if unmet (so long as requisite service is rendered), whereas performance conditions are accrued only when probable.",
  "related_topics": [
    "718-20",
    "718-30",
    "718-50",
    "718-740",
    "480",
    "260"
  ],
  "key_concepts": [
    "share-based payment arrangement",
    "grant-date fair value",
    "requisite service period",
    "liability versus equity classification",
    "performance, market, and service conditions",
    "forfeiture policy election",
    "calculated value and intrinsic value",
    "nonemployee awards"
  ]
}
```

Source downloaded (UTC): 2026-09-10T01:03:15.807Z to 2026-09-10T01:03:15.807Z

Record version: sha256:c77869dbcd041efb05d4a02511d01b8016ad332e5b22accef35a65081882dbde

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-00: 00 Status

[Read section](https://asc.understandingaccounting.org/asc/718/10/#00-status)

SEC content: no

##### [718-10-00-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-00-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:15.807Z to 2026-09-10T01:03:15.807Z

Record version: sha256:887032a4d92ebc53864a4e80de0fb126b9d30f2778cd405816b0cba0ae6ea0d1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following table identifies the changes made to this Subtopic.

<table class="asc-table" id="SL6890708-128454"><tbody><tr><td class="entry"><strong class="ph b">Paragraph</strong></td><td class="entry"><strong class="ph b">Action</strong></td><td class="entry"><strong class="ph b">Accounting Standards Update</strong></td><td class="entry"><strong class="ph b">Date</strong></td></tr><tr><td class="entry"></td><td class="entry"></td><td class="entry"></td><td class="entry"></td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/a/#award" class="term" title="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."><span>Award</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/b/#broker-assisted-cashless-exercise" class="term" title="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."><span>Broker-Assisted Cashless Exercise</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/c/#contract" class="term" title="An agreement between two or more parties that creates enforceable rights and obligations."><span>Contract</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/c/#convertible-security" class="term" title="A security that is convertible into another security based on a conversion rate. For example, convertible preferred stock that is convertible into common stock on a two-for-one basis (two shares of common for each share of preferred)."><span>Convertible Security</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2020-06/" class="xref">Accounting Standards Update No. 2020-06</a></td><td class="entry">08/05/2020</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/c/#corporate-joint-venture" class="term" title="A corporation owned and operated by a small group of entities (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a corporate joint venture frequently is to share risks and rewards in developing a new market, product or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A corporate joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a corporate joint venture. The ownership of a corporate joint venture seldom changes, and its stock is usually not traded publicly. A noncontrolling interest held by public ownership, however, does not preclude a corporation from being a corporate joint venture."><span>Corporate Joint Venture</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2023-05/" class="xref">Accounting Standards Update No. 2023-05</a></td><td class="entry">08/23/2023</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/c/#customer" class="term" title="A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration."><span>Customer</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-04/" class="xref">Accounting Standards Update No. 2025-04</a></td><td class="entry">05/15/2025</td></tr><tr><td class="entry"><strong class="ph b">Customer</strong></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/c/#customer" class="term" title="A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration."><span>Customer (1st def.)</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/e/#employee" class="term" title="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."><span>Employee (2nd def.)</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2024-03/" class="xref">Accounting Standards Update No. 2024-03</a></td><td class="entry">11/04/2024</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/g/#grant-date" class="term" title="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."><span>Grant Date</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/g/#grant-date" class="term" title="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."><span>Grant Date</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/i/#issued-issuance-or-issuing-of-an-equity-instrument" class="term" title="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."><span>Issued, Issuance, or Issuing of an Equity Instrument</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-19/" class="xref">Accounting Standards Update No. 2016-19</a></td><td class="entry">12/14/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/j/#joint-venture" class="term" title="An entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a joint venture frequently is to share risks and rewards in developing a new market, product, or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a joint venture. The ownership of a joint venture seldom changes, and its equity interests usually are not traded publicly. A minority public ownership, however, does not preclude an entity from being a joint venture. As distinguished from a corporate joint venture, a joint venture is not limited to corporate entities."><span>Joint Venture</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2023-05/" class="xref">Accounting Standards Update No. 2023-05</a></td><td class="entry">08/23/2023</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/m/#modification" class="term" title="A change in the terms or conditions of a share-based payment award."><span>Modification</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-09/" class="xref">Accounting Standards Update No. 2017-09</a></td><td class="entry">05/10/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/n/#nonvested-shares" class="term" title="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)."><span>Nonvested Shares</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/o/#option" class="term" title="Unless otherwise stated, a call option that gives the holder the right to purchase shares of common stock from the reporting entity in accordance with an agreement upon payment of a specified amount. Options include, but are not limited to, options granted and stock purchase agreements entered into with grantees. Options are considered securities. See Call Option."><span>Option</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#performance-condition" class="term" title="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."><span>Performance Condition</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-04/" class="xref">Accounting Standards Update No. 2025-04</a></td><td class="entry">05/15/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#performance-condition" class="term" title="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."><span>Performance Condition</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#public-business-entity" class="term" title="A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC."><span>Public Business Entity</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/asc-pdf/GUID-86B34FCD-7B0A-4349-8682-E212043FD47A.pdf" class="pdf-link" target="_blank" rel="noopener">Maintenance Update 2017-06 (PDF)</a></td><td class="entry">04/07/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#public-business-entity" class="term" title="A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC."><span>Public Business Entity</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/asc-pdf/GUID-8C0B93FE-237A-4BFA-8880-FE749B3CAFCB.pdf" class="pdf-link" target="_blank" rel="noopener">Maintenance Update 2016-11 (PDF)</a></td><td class="entry">06/27/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#public-business-entity" class="term" title="A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC."><span>Public Business Entity</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/r/#reload-feature-and-reload-option" class="term" title="A reload feature provides for automatic grants of additional options whenever a grantee exercises previously granted options using the entity's shares, rather than cash, to satisfy the exercise price. At the time of exercise using shares, the grantee is automatically granted a new option, called a reload option, for the shares used to exercise the previous option."><span>Reload Feature and Reload Option</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/r/#restricted-share" class="term" title="A share for which sale is contractually or governmentally prohibited for a specified period of time. Most grants of shares to grantees are better termed nonvested shares because the limitation on sale stems solely from the forfeitability of the shares before grantees have satisfied the service, performance, or other condition(s) necessary to earn the rights to the shares. Restricted shares issued for consideration other than for goods or services, on the other hand, are fully paid for immediately. For those shares, there is no period analogous to an employee's requisite service period or a nonemployee's vesting period during which the issuer is unilaterally obligated to issue shares when the purchaser pays for those shares, but the purchaser is not obligated to buy the shares. The term restricted shares refers only to fully vested and outstanding shares whose sale is contractually or governmentally prohibited for a specified period of time. Vested equity instruments that are transferable to a grantee's immediate family members or to a trust that benefits only those family members are restricted if the transferred instruments retain the same prohibition on sale to third parties. See Nonvested Shares."><span>Restricted Share</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/s/#service-condition" class="term" title="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."><span>Service Condition</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/s/#service-inception-date" class="term" title="The date at which the employee's requisite service period or the nonemployee's vesting period begins. The service inception date usually is the grant date, but the service inception date may differ from the grant date (see Example 6 [see paragraph 718-10-55-107] for an illustration of the application of this term to an employee award)."><span>Service Inception Date</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/s/#share-option" class="term" title="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."><span>Share Option</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/v/#vest" class="term" title="To earn the rights to. A share-based payment award becomes vested at the date that the grantee's right to receive or retain shares, other instruments, or cash under the award is no longer contingent on satisfaction of either a service condition or a performance condition. Market conditions are not vesting conditions. The stated vesting provisions of an award often establish the employee's requisite service period or the nonemployee's vesting period, and an award that has reached the end of the applicable period is vested. However, as indicated in the definition of requisite service period and equally applicable to a nonemployee's vesting period, the stated vesting period may differ from those periods in certain circumstances. Thus, the more precise terms would be options, shares, or awards for which the requisite good has been delivered or service has been rendered and the end of the employee's requisite service period or the nonemployee's vesting period."><span>Vest</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"></td><td class="entry"></td><td class="entry"></td><td class="entry"></td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-05-1" class="xref">718-10-05-1 through 05-3</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-10-1" class="xref">718-10-10-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-10-1" class="xref">718-10-10-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-10-1" class="xref">718-10-10-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-19/" class="xref">Accounting Standards Update No. 2016-19</a></td><td class="entry">12/14/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-10-2" class="xref">718-10-10-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-2" class="xref">718-10-15-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3" class="xref">718-10-15-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2024-01/" class="xref">Accounting Standards Update No. 2024-01</a></td><td class="entry">3/21/2024</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3" class="xref">718-10-15-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3" class="xref">718-10-15-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3" class="xref">718-10-15-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-19/" class="xref">Accounting Standards Update No. 2016-19</a></td><td class="entry">12/14/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3A" class="xref">718-10-15-3A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3B" class="xref">718-10-15-3B</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2024-01/" class="xref">Accounting Standards Update No. 2024-01</a></td><td class="entry">03/21/2024</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-4" class="xref">718-10-15-4</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5" class="xref">718-10-15-5</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2021-04/" class="xref">Accounting Standards Update No. 2021-04</a></td><td class="entry">05/03/2021</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5" class="xref">718-10-15-5</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5" class="xref">718-10-15-5</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5A" class="xref">718-10-15-5A</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-04/" class="xref">Accounting Standards Update No. 2025-04</a></td><td class="entry">05/15/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5A" class="xref">718-10-15-5A</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5A" class="xref">718-10-15-5A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5B" class="xref">718-10-15-5B</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-04/" class="xref">Accounting Standards Update No. 2025-04</a></td><td class="entry">05/15/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-6" class="xref">718-10-15-6</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-19/" class="xref">Accounting Standards Update No. 2016-19</a></td><td class="entry">12/14/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-15-8" class="xref">718-10-15-8</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2023-05/" class="xref">Accounting Standards Update No. 2023-05</a></td><td class="entry">08/23/2023</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-1" class="xref">718-10-25-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2012-04/" class="xref">Accounting Standards Update No. 2012-04</a></td><td class="entry">10/01/2012</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2" class="xref">718-10-25-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2A" class="xref">718-10-25-2A through 25-2C</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2C" class="xref">718-10-25-2C</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-3" class="xref">718-10-25-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-5" class="xref">718-10-25-5</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-6" class="xref">718-10-25-6</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-7" class="xref">718-10-25-7 through 25-9</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-9" class="xref">718-10-25-9</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-19/" class="xref">Accounting Standards Update No. 2016-19</a></td><td class="entry">12/14/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-11" class="xref">718-10-25-11</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-12" class="xref">718-10-25-12</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-14" class="xref">718-10-25-14 through 25-16</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-14A" class="xref">718-10-25-14A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2010-13/" class="xref">Accounting Standards Update No. 2010-13</a></td><td class="entry">04/16/2010</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-17" class="xref">718-10-25-17</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2012-04/" class="xref">Accounting Standards Update No. 2012-04</a></td><td class="entry">10/01/2012</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-18" class="xref">718-10-25-18</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-19" class="xref">718-10-25-19</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-19A" class="xref">718-10-25-19A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-20" class="xref">718-10-25-20</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-25-21" class="xref">718-10-25-21</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-2" class="xref">718-10-30-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-2" class="xref">718-10-30-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-19/" class="xref">Accounting Standards Update No. 2016-19</a></td><td class="entry">12/14/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-3" class="xref">718-10-30-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-3" class="xref">718-10-30-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-5" class="xref">718-10-30-5</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6" class="xref">718-10-30-6</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-8" class="xref">718-10-30-8</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10" class="xref">718-10-30-10</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10A" class="xref">718-10-30-10A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10B" class="xref">718-10-30-10B</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-11" class="xref">718-10-30-11 through 30-14</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-17" class="xref">718-10-30-17 through 30-19</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-19A" class="xref">718-10-30-19A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A" class="xref">718-10-30-20A</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A" class="xref">718-10-30-20A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20B" class="xref">718-10-30-20B</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20B" class="xref">718-10-30-20B</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20B" class="xref">718-10-30-20B</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20C" class="xref">718-10-30-20C through 30-20H</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2021-07/" class="xref">Accounting Standards Update No. 2021-07</a></td><td class="entry">10/25/2021</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-24" class="xref">718-10-30-24</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-27" class="xref">718-10-30-27</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-28" class="xref">718-10-30-28</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-28" class="xref">718-10-30-28</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-30-28" class="xref">718-10-30-28</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2014-12/" class="xref">Accounting Standards Update No. 2014-12</a></td><td class="entry">06/19/2014</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1A" class="xref">718-10-35-1A through 35-1F</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D" class="xref">718-10-35-1D</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-04/" class="xref">Accounting Standards Update No. 2025-04</a></td><td class="entry">05/15/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D" class="xref">718-10-35-1D</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-2" class="xref">718-10-35-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3" class="xref">718-10-35-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3" class="xref">718-10-35-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-5" class="xref">718-10-35-5</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-8" class="xref">718-10-35-8</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-9" class="xref">718-10-35-9</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-9A" class="xref">718-10-35-9A</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2020-06/" class="xref">Accounting Standards Update No. 2020-06</a></td><td class="entry">08/05/2020</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-9A" class="xref">718-10-35-9A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10" class="xref">718-10-35-10</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2020-06/" class="xref">Accounting Standards Update No. 2020-06</a></td><td class="entry">08/05/2020</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10" class="xref">718-10-35-10</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10" class="xref">718-10-35-10</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10A" class="xref">718-10-35-10A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-11" class="xref">718-10-35-11</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-11" class="xref">718-10-35-11</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-12" class="xref">718-10-35-12</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-13" class="xref">718-10-35-13</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-14" class="xref">718-10-35-14</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-35-15" class="xref">718-10-35-15</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-45-1" class="xref">718-10-45-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-45-1" class="xref">718-10-45-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-45-3" class="xref">718-10-45-3</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1" class="xref">718-10-50-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-11/" class="xref">Accounting Standards Update No. 2025-11</a></td><td class="entry">12/08/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1" class="xref">718-10-50-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2" class="xref">718-10-50-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2021-07/" class="xref">Accounting Standards Update No. 2021-07</a></td><td class="entry">10/25/2021</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2" class="xref">718-10-50-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2" class="xref">718-10-50-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-09/" class="xref">Accounting Standards Update No. 2017-09</a></td><td class="entry">05/10/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2" class="xref">718-10-50-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-19/" class="xref">Accounting Standards Update No. 2016-19</a></td><td class="entry">12/14/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2" class="xref">718-10-50-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2A" class="xref">718-10-50-2A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-2" class="xref">718-10-55-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-2" class="xref">718-10-55-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-4" class="xref">718-10-55-4 through 55-6</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-8" class="xref">718-10-55-8 through 55-12</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-15" class="xref">718-10-55-15 through 55-19</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21" class="xref">718-10-55-21</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-22" class="xref">718-10-55-22</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-24" class="xref">718-10-55-24</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-27" class="xref">718-10-55-27</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-29A" class="xref">718-10-55-29A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-30" class="xref">718-10-55-30</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-34A" class="xref">718-10-55-34A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-45" class="xref">718-10-55-45</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-45" class="xref">718-10-55-45</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-47" class="xref">718-10-55-47 through 55-49</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-50A" class="xref">718-10-55-50A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-52" class="xref">718-10-55-52</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-53" class="xref">718-10-55-53</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-59" class="xref">718-10-55-59 through 55-63</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-61A" class="xref">718-10-55-61A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-65" class="xref">718-10-55-65</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2010-13/" class="xref">Accounting Standards Update No. 2010-13</a></td><td class="entry">04/16/2010</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-66" class="xref">718-10-55-66</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-67" class="xref">718-10-55-67</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-69" class="xref">718-10-55-69</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-76" class="xref">718-10-55-76</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-81" class="xref">718-10-55-81 through 55-83</a></div></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-85" class="xref">718-10-55-85</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-86" class="xref">718-10-55-86</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-88" class="xref">718-10-55-88</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2014-12/" class="xref">Accounting Standards Update No. 2014-12</a></td><td class="entry">06/19/2014</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-92" class="xref">718-10-55-92</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-97" class="xref">718-10-55-97</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-100" class="xref">718-10-55-100</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-107" class="xref">718-10-55-107</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-116A" class="xref">718-10-55-116A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-116B" class="xref">718-10-55-116B</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-131" class="xref">718-10-55-131</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-134" class="xref">718-10-55-134</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-137" class="xref">718-10-55-137</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-55-138" class="xref">718-10-55-138 through 55-148</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2024-01/" class="xref">Accounting Standards Update No. 2024-01</a></td><td class="entry">03/21/2024</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-60-1B" class="xref">718-10-60-1B</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-60-2" class="xref">718-10-60-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-65-1" class="xref">718-10-65-1</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-65-2" class="xref">718-10-65-2</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2010-13/" class="xref">Accounting Standards Update No. 2010-13</a></td><td class="entry">04/16/2010</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-65-3" class="xref">718-10-65-3</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2014-12/" class="xref">Accounting Standards Update No. 2014-12</a></td><td class="entry">06/19/2014</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-65-4" class="xref">718-10-65-4 through 65-10</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-09/" class="xref">Accounting Standards Update No. 2016-09</a></td><td class="entry">03/30/2016</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-65-11" class="xref">718-10-65-11 through 65-14</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-07/" class="xref">Accounting Standards Update No. 2018-07</a></td><td class="entry">06/20/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-65-15" class="xref">718-10-65-15</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2019-08/" class="xref">Accounting Standards Update No. 2019-08</a></td><td class="entry">11/11/2019</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-65-16" class="xref">718-10-65-16</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2021-07/" class="xref">Accounting Standards Update No. 2021-07</a></td><td class="entry">10/25/2021</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17" class="xref">718-10-65-17</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2024-01/" class="xref">Accounting Standards Update No. 2024-01</a></td><td class="entry">03/21/2024</td></tr></tbody></table>

Source downloaded (UTC): 2026-09-10T01:03:19.568Z to 2026-09-10T01:03:19.568Z

Record version: sha256:6d7d4cd9ed97539271d45ca08416c7b193fe0a1ec548d46acad5b8cb902f8167

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-05: 05 Overview and Background

[Read section](https://asc.understandingaccounting.org/asc/718/10/#05-overview-and-background)

SEC content: no

##### [718-10-05-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-05-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:19.568Z to 2026-09-10T01:03:19.568Z

Record version: sha256:d1d7f25ebe3071d038f9c7de4b08fb99955e6b28549806704f02314ae7de121f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The Compensation—Stock Compensation Topic provides guidance on [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."). This Topic includes the following Subtopics:

1.  a
    
    Overall
    
2.  b
    
    Awards Classified as Equity
    
3.  c
    
    Awards Classified as Liabilities
    
4.  d
    
    [Employee Stock Ownership Plans](https://asc.understandingaccounting.org/glossary/e/#employee-stock-ownership-plan "An employee stock ownership plan is an employee benefit plan that is described by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 as a stock bonus plan, or combination stock bonus and money purchase pension plan, designed to invest primarily in employer stock. Also called an employee share ownership plan.")
    
5.  e
    
    Employee Stock Purchase Plans
    
6.  f
    
    Income Taxes.

##### [718-10-05-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-05-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:19.568Z to 2026-09-10T01:03:19.568Z

Record version: sha256:2c6750b66b8f9e8423465bddb53dd4c93d6b7700275d8731df224031110ec7ba

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Topic provides guidance for employee and nonemployee share-based payment transactions.

##### [718-10-05-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-05-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:19.568Z to 2026-09-10T01:03:19.568Z

Record version: sha256:a12a78f8b3499c049be3ed4b9e907e54ff12c28428ff0faf9be3904a2a341a9f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Subtopic provides general guidance related to [share-based payment arrangements](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-arrangements "An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements."). This Subtopic and Subtopics 718-20 and 718-30 are interrelated and the required guidance may be located in either this Subtopic or one of the other Subtopics. In general, material that relates to both equity and liability instruments is included in this Subtopic, while material more specifically related to either equity or liability instruments is included in their respective Subtopics. Guidance referencing grantees is intended to be applicable to recipients of both employee and nonemployee awards, and guidance referencing [employees](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.") or nonemployees is only applicable to those specific types of awards.

Source downloaded (UTC): 2026-09-10T01:03:22.817Z to 2026-09-10T01:03:22.817Z

Record version: sha256:7d26dd19f57cfe01c5781e982117eb8cd52d71808529a70d1a36be799848a096

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-10: 10 Objectives

[Read section](https://asc.understandingaccounting.org/asc/718/10/#10-objectives)

SEC content: no

##### [718-10-10-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-10-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:22.817Z to 2026-09-10T01:03:22.817Z

Record version: sha256:77d8139d86d5c1ad3521deb2c226c4a835d53deb3fc724b718881f90c2bf55cb

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The objective of accounting for transactions under [share-based payment arrangements](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-arrangements "An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements.") is to recognize in the financial statements the goods or services received in exchange for equity instruments granted or liabilities incurred and the related cost to the entity as those goods or services are received. This Topic uses the terms _compensation_ and _payment_ in their broadest senses to refer to the consideration paid for goods or services or the consideration paid to a customer.

##### [718-10-10-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-10-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:22.817Z to 2026-09-10T01:03:22.817Z

Record version: sha256:0a1b869984117b985c482bad0ba2720e903396db7243600170dd5f8d243712b4

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Topic requires that the cost resulting from all [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.") be recognized in the financial statements. This Topic establishes [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.") as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions except for equity instruments held by [employee stock ownership plans](https://asc.understandingaccounting.org/glossary/e/#employee-stock-ownership-plan "An employee stock ownership plan is an employee benefit plan that is described by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 as a stock bonus plan, or combination stock bonus and money purchase pension plan, designed to invest primarily in employer stock. Also called an employee share ownership plan.").

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:0fb4adae59211069b370d690b4fd23b1693741ed4e76d90a9ca67476b72befe3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-15: 15 Scope and Scope Exceptions

[Read section](https://asc.understandingaccounting.org/asc/718/10/#15-scope-and-scope-exceptions)

SEC content: no

#### Overall Guidance

##### [718-10-15-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:f9f8f06836223e5d362a058503335ef43362abd1ffa943f6f80590f4fd18cad2

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The Scope Section of the Overall Subtopic establishes the pervasive scope for all Subtopics of the Compensation—Stock Compensation Topic. Unless explicitly addressed within specific Subtopics, the following scope guidance applies to all Subtopics of the Compensation—Stock Compensation Topic, with the exception of Subtopic 718-50, which has its own discrete scope.

#### Entities

##### [718-10-15-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:b5374b87b6792f0dd6f3b5b68540cb7bfc01170a89af1fe95f6462af7a731f73

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The guidance in the Compensation—Stock Compensation Topic applies to all entities that enter into [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.").

#### Transactions

##### [718-10-15-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:3f42fa1815fd30db77d9007aaa405a30e970833f15fa3a9d866733c1a5e4cfb7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The guidance in the Compensation—Stock Compensation Topic applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in the grantor's own operations or provides consideration payable to a customer by [issuing](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.") (or offering to issue) its shares, share options, or other equity instruments or by incurring liabilities to an [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.")or a nonemployee that meet either of the following conditions:

1.  a
    
    The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase _at least in part_ is used because an [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.") of share-based compensation may be indexed to both the price of an entity's shares and something else that is neither the price of the entity's shares nor a [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."), or [service condition](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.").)
    
2.  b
    
    The awards require or may require [settlement](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.") by issuing the entity's equity shares or other equity instruments.
    

Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)The guidance in the Compensation—Stock Compensation Topic applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in the grantor's own operations or provides consideration payable to a customer by either of the following:

1.  a
    
    [Issuing](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.") (or offering to issue) its shares, share options, or other equity instruments to an [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.") or a nonemployee
    
2.  b
    
    Incurring liabilities to an employee or a nonemployee that meet either of the following conditions:
    
    1.  1
        
        The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase _at least in part_ is used because an [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.") of share-based compensation may be indexed to both the price of an entity's shares and something else that is neither the price of the entity's shares nor a [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."), or [service condition](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.").)
        
    2.  2
        
        The awards require or may require [settlement](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.") by issuing the entity's equity shares or other equity instruments.

##### [718-10-15-3A](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:bfd8ac295866b3d6285d2867eed21157b75ede39c5d862c5a9bbaefbcd42de68

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraphs

[323-10-25-3 through 25-5](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-3)

provide guidance on accounting for share-based compensation granted by an investor to employees or nonemployees of an equity method investee that provide goods or services to the investee that are used or consumed in the investee's operations.

##### [718-10-15-3B](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3B)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:7412264aff37642f68b24355deda2d934f4e3803ac397242e63a1fd8128bb247

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)An entity shall apply the guidance in paragraph [718-10-15-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) to determine whether a profits interest or similar award is within the scope of this Topic. Paragraphs

[718-10-55-138 through 55-148](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-138)

illustrate how the guidance in paragraph [718-10-15-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) applies to common features in a profits interest or similar award.

##### [718-10-15-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:45787451682ba97466ffd1a358c9955339462524485bd1f84fa70c52cdb39516

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Share-based payments awarded to a grantee by a related party or other holder of an [economic interest in the entity](https://asc.understandingaccounting.org/glossary/e/#economic-interest-in-an-entity "Any type or form of pecuniary interest or arrangement that an entity could issue or be a party to, including equity securities; financial instruments with characteristics of equity, liabilities, or both; long-term debt and other debt-financing arrangements; leases; and contractual arrangements such as management contracts, service contracts, or intellectual property licenses.") as compensation for goods or services provided to the reporting entity are share-based payment transactions to be accounted for under this Topic unless the transfer is clearly for a purpose other than compensation for goods or services to the reporting entity. The substance of such a transaction is that the economic interest holder makes a capital contribution to the reporting entity, and that entity makes a share-based payment to the grantee in exchange for services rendered or goods received. An example of a situation in which such a transfer is not compensation is a transfer to settle an obligation of the economic interest holder to the grantee that is unrelated to goods or services to be used or consumed in a grantor's own operations.

##### [718-10-15-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:83fe7e51d6ead19f1c3cd02d7c275b0f7ea201ff8ad3794cad5642345fef1855

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The guidance in this Topic does not apply to transactions involving share-based payment awards granted to a lender or an investor that provides financing to the issuer. However, see paragraphs

[815-40-35-14 through 35-15](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-14)

, [815-40-35-18](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-18), [815-40-55-49](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-49), and [815-40-55-52](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-52) for guidance on an issuer's accounting for modifications or exchanges of written call options to compensate grantees.

1.  a
    
    [Subparagraph superseded by Accounting Standards Update No. 2018-07](https://asc.understandingaccounting.org/updates/asu-2018-07/).
    
2.  b
    
    [Subparagraph superseded by Accounting Standards Update No. 2019-08](https://asc.understandingaccounting.org/updates/asu-2019-08/).
    
3.  c
    
    [Subparagraph superseded by Accounting Standards Update No. 2019-08](https://asc.understandingaccounting.org/updates/asu-2019-08/).

##### [718-10-15-5A](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5A)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:55f4bbf288eefe78dc820a677ba733ee6ea4ebd81ea9d989380bba45f538d513

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Share-based payment awards granted to a customer shall be measured and classified in accordance with the guidance in this Topic (see paragraph [606-10-32-25A](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-25A)) and reflected as a reduction of the transaction price and, therefore, of revenue in accordance with paragraph [606-10-32-25](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-25) unless the consideration is in exchange for a distinct good or service. If share-based payment awards are granted to a customer as payment for a distinct good or service from the customer, then an entity shall apply the guidance in paragraph [606-10-32-26](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-26).

Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:

[606-10-65-2](https://asc.understandingaccounting.org/asc/606/10/#606-10-65-2)Share-based consideration granted to a customer (or to other parties that purchase the grantor’s goods or services from the customer) shall be measured and classified in accordance with the guidance in this Topic (see paragraph [606-10-32-25A](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-25A)) and reflected as a reduction of the transaction price and, therefore, of revenue in accordance with paragraph [606-10-32-25](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-25) unless the consideration is in exchange for a distinct good or service. If share-based payment awards are granted to a customer as payment for a distinct good or service from the customer, then the grantor shall apply the guidance in paragraph [606-10-32-26](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-26). See also paragraph [606-10-55-88AB](https://asc.understandingaccounting.org/asc/606/10/#606-10-55-88AB).

##### [718-10-15-5B](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5B)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:3d1cde826d9eade9b8bb46a3fd294ba51d56d8c03dea8972db11b3932aaac9ba

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:

[606-10-65-2](https://asc.understandingaccounting.org/asc/606/10/#606-10-65-2)A grantor shall not apply by analogy the aspects of the definition of performance condition that are specific to share-based consideration payable to a customer described in paragraph [606-10-55-88AA](https://asc.understandingaccounting.org/asc/606/10/#606-10-55-88AA) to awards granted to employees or nonemployees in which the grantor acquires goods or services to be used or consumed in the grantor’s own operations that are solely within the scope of the guidance in this Topic. See also paragraphs

[606-10-55-88AB through 55-88AC](https://asc.understandingaccounting.org/asc/606/10/#606-10-55-88AB)

.

##### [718-10-15-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-6)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:efe36e04a142095b8d26abcbac9fc2be51c2681181c3fa5e63e61fb295a1c4b7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraphs

[805-30-30-9 through 30-13](https://asc.understandingaccounting.org/asc/805/30/#805-30-30-9)

provide guidance on determining whether share-based payment awards [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.") in a business combination are part of the consideration transferred in exchange for the acquiree, and therefore in the scope of Topic 805, or are for continued service to be recognized in the postcombination period in accordance with this Topic.

##### [718-10-15-7](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-7)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:3cb0d162283ad1d8604cab680538e86d27224d99ccb124d22b417e3bbfe37cba

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The guidance in the Overall Subtopic does not apply to equity instruments held by an employee stock ownership plan.

##### [718-10-15-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-8)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:26.761Z to 2026-09-10T01:03:26.761Z

Record version: sha256:3a5f44102d1f28a52a2c62fa10116c0b79cc35522843db9bb47e3e073af398ca

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph [805-60-25-8](https://asc.understandingaccounting.org/asc/805/60/#805-60-25-8) provides guidance on determining whether share-based payment awards issued by a [joint venture](https://asc.understandingaccounting.org/glossary/j/#joint-venture "An entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a joint venture frequently is to share risks and rewards in developing a new market, product, or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a joint venture. The ownership of a joint venture seldom changes, and its equity interests usually are not traded publicly. A minority public ownership, however, does not preclude an entity from being a joint venture. As distinguished from a corporate joint venture, a joint venture is not limited to corporate entities.") upon formation are part of the joint venture formation transaction and, therefore, are within the scope of Subtopic 805-60, or are for continued service to be recognized in the postformation period in accordance with this Topic.

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.

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:f89c073ee0425de0ae3d9d6b6ec7f5ca7291e6144a6a55058a08200c2eca6349

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-30: 30 Initial Measurement

[Read section](https://asc.understandingaccounting.org/asc/718/10/#30-initial-measurement)

SEC content: no

##### [718-10-30-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:fae35ab4023dc65d89dd70629a2d1c73daeee37121c914cca219e1c920700329

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


While some of the material in this Section was written in terms of awards classified as equity, it applies equally to awards classified as liabilities.

#### Fair-Value-Based

##### [718-10-30-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:9e9e18067a6bc14d849517a674bd3558f0a54c75b0f534597301391aac4c826a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A share-based payment transaction shall be measured based on 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.") (or in certain situations specified in this Topic, a [calculated value](https://asc.understandingaccounting.org/glossary/c/#calculated-value "A measure of the value of a share option or similar instrument determined by substituting the historical volatility of an appropriate industry sector index for the expected volatility of a nonpublic entity's share price in an option-pricing model.") or [intrinsic value](https://asc.understandingaccounting.org/glossary/i/#intrinsic-value "The amount by which the fair value of the underlying stock exceeds the exercise price of an option. For example, an option with an exercise price of $20 on a stock whose current market price is $25 has an intrinsic value of $5. (A nonvested share may be described as an option on that share with an exercise price of zero. Thus, the fair value of a share is the same as the intrinsic value of such an option on that share.)")) of the equity instruments [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.").

##### [718-10-30-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:d95f5fbff2af079dc0a35b2944fe034fdaa1a3e7836aae826eee4bba47cb37cd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall account for the compensation cost from [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.") in accordance with the fair-value-based method set forth in this Topic. That is, the cost of goods obtained or services received in exchange for [awards](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.") of share-based compensation generally shall be measured based on the grant-date fair value of the equity instruments issued or on the fair value of the liabilities incurred. The cost of goods obtained or services received by an entity as consideration for equity instruments issued or liabilities incurred in share-based compensation transactions shall be measured based on the fair value of the equity instruments issued or the liabilities [settled](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 portion of the fair value of an instrument attributed to goods obtained or services received is net of any amount that a grantee pays (or becomes obligated to pay) for that instrument when it is granted. For example, if a grantee pays $5 at 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.") for an option with a grant-date fair value of $50, the amount attributed to goods or services provided by the grantee is $45. An entity shall apply the guidance in paragraph [606-10-32-26](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-26) when determining the portion of the fair value of an equity instrument attributed to goods obtained or services received from a customer.

##### [718-10-30-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:5dc78715def0e63babc63e50970761cd563fe522f94e539703f393c7094ecd62

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


However, this Topic provides certain exceptions (see paragraph [718-10-30-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-21)) to that measurement method if it is not possible to reasonably estimate the fair value of an [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.") at the grant date. A [nonpublic entity](https://asc.understandingaccounting.org/glossary/n/#nonpublic-entity "Any entity other than one that meets any of the following criteria: Has equity securities that trade in a public market either on a stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally Makes a filing with a regulatory agency in preparation for the sale of any class of equity securities in a public market Is controlled by an entity covered by the preceding criteria. An entity that has only debt securities trading in a public market (or that has made a filing with a regulatory agency in preparation to trade only debt securities) is a nonpublic entity.") also may choose to measure its liabilities under [share-based payment arrangements](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-arrangements "An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements.") at intrinsic value (see paragraphs [718-10-30-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20) and [718-30-30-2](https://asc.understandingaccounting.org/asc/718/30/#718-30-30-2)).

##### [718-10-30-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:ad6178ce877ccdd0837bbbf8a386ec917684b726ca828cfaf3f19d2167f57355

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The [terms of a share-based payment award](https://asc.understandingaccounting.org/glossary/t/#terms-of-a-share-based-payment-award "The contractual provisions that determine the nature and scope of a share-based payment award. For example, the exercise price of share options is one of the terms of an award of share options. As indicated in paragraph 718-10-25-15, the written terms of a share-based payment award and its related arrangement, if any, usually provide the best evidence of its terms. However, an entity's past practice or other factors may indicate that some aspects of the substantive terms differ from the written terms. The substantive terms of a share-based payment award, as those terms are mutually understood by the entity and a party (either an employee or a nonemployee) who receives the award, provide the basis for determining the rights conveyed to a party and the obligations imposed on the issuer, regardless of how the award and related arrangement, if any, are structured. See paragraph 718-10-30-5.") and any related arrangement affect its value and, except for certain explicitly excluded features, such as a [reload feature](https://asc.understandingaccounting.org/glossary/r/#reload-feature-and-reload-option "A reload feature provides for automatic grants of additional options whenever a grantee exercises previously granted options using the entity's shares, rather than cash, to satisfy the exercise price. At the time of exercise using shares, the grantee is automatically granted a new option, called a reload option, for the shares used to exercise the previous option."), shall be reflected in determining the fair value of the equity or liability instruments granted. For example, the fair value of a substantive option structured as the exchange of equity shares for a nonrecourse note will differ depending on whether the grantee is required to pay nonrefundable interest on the note.

#### Measurement Objective—Fair Value at Grant Date

##### [718-10-30-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:8c70fd0b7eacf7ee7921e70535379256678567552a0f4439a8791578ccb747b4

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The measurement objective for equity instruments awarded to grantees is to estimate the fair value at the grant date of the equity instruments that the entity is obligated to issue when grantees have delivered the good or rendered the service and satisfied any other conditions necessary to earn the right to benefit from the instruments (for example, to exercise share options). That estimate is based on the share price and other pertinent factors, such as expected [volatility](https://asc.understandingaccounting.org/glossary/v/#volatility "A measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Volatility also may be defined as a probability-weighted measure of the dispersion of returns about the mean. The volatility of a share price is the standard deviation of the continuously compounded rates of return on the share over a specified period. That is the same as the standard deviation of the differences in the natural logarithms of the stock prices plus dividends, if any, over the period. The higher the volatility, the more the returns on the shares can be expected to vary—up or down. Volatility is typically expressed in annualized terms."), at the grant date.

##### [718-10-30-7](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-7)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:a38bf5be0c864db50be178824a52e42fd3d12d05f8af14653537df63909a76a6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The fair value of an equity [share option](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.") or similar instrument shall be measured based on the observable market price of an option with the same or similar terms and conditions, if one is available (see paragraph [718-10-55-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-10)).

##### [718-10-30-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-8)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:14c7c35688447826e8371984dd94e1d026a149cd88ffab4ffd317f728993052e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Such market prices for equity share options and similar instruments granted in share-based payment transactions are frequently not available; however, they may become so in the future.

##### [718-10-30-9](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-9)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:9def8103631ba85642bd85ba7a96aad9d171255d2cd0024282d06c21ca6998f6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As such, the fair value of an equity share option or similar instrument shall be estimated using a valuation technique such as an option-pricing model. For this purpose, a similar instrument is one whose fair value differs from its intrinsic value, that is, an instrument that has [time value](https://asc.understandingaccounting.org/glossary/t/#time-value "The portion of the fair value of an option that exceeds its intrinsic value. For example, a call option with an exercise price of $20 on a stock whose current market price is $25 has intrinsic value of $5. If the fair value of that option is $7, the time value of the option is $2 ($7 - $5)."). For example, a share appreciation right that requires net settlement in equity shares has time value; an equity share does not. Paragraphs

[718-10-55-4 through 55-47](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-4)

provide additional guidance on estimating the fair value of equity instruments, including the factors to be taken into account in estimating the fair value of equity share options or similar instruments as described in paragraphs

[718-10-55-21 through 55-22](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21)

.

#### Factors or Restrictions That Impact the Determination of Fair Value at Grant Date

##### [718-10-30-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:48016ac0fe2d6ca0e26c3c6b62e9670f53b2eeacdf76d3f539e44aaafc5b466f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


To satisfy the measurement objective in paragraph [718-10-30-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6), the restrictions and conditions inherent in equity instruments awarded are treated differently depending on whether they continue in effect after the [requisite service period](https://asc.understandingaccounting.org/glossary/r/#requisite-service-period "The period or periods during which an employee is required to provide service in exchange for an award under a share-based payment arrangement. The service that an employee is required to render during that period is referred to as the requisite service. The requisite service period for an award that has only a service condition is presumed to be the vesting period, unless there is clear evidence to the contrary. If an award requires future service for vesting, the entity cannot define a prior period as the requisite service period. Requisite service periods may be explicit, implicit, or derived, depending on the terms of the share-based payment award.") or the nonemployee's vesting period. A [restriction](https://asc.understandingaccounting.org/glossary/r/#restriction "A contractual or governmental provision that prohibits sale (or substantive sale by using derivatives or other means to effectively terminate the risk of future changes in the share price) of an equity instrument for a specified period of time.") that continues in effect after an entity has issued awards, such as the inability to transfer vested equity share options to third parties or the inability to sell vested shares for a period of time, is considered in estimating the fair value of the instruments at the grant date. For equity share options and similar instruments, the effect of nontransferability (and nonhedgeability, which has a similar effect) is taken into account by reflecting the effects of grantees' expected exercise and postvesting termination behavior in estimating fair value (referred to as an option's expected term).

##### [718-10-30-10A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:d928f1dedd8d4c81f95b10e57a903c478405298a3487ef9bb4234ae29acef5e3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


On an award-by-award basis, an entity may elect to use the contractual term as the expected term when estimating the fair value of a nonemployee award to satisfy the measurement objective in paragraph [718-10-30-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6). Otherwise, an entity shall apply the guidance in this Topic in estimating the expected term of a nonemployee award, which may result in a term less than the contractual term of the award.

##### [718-10-30-10B](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10B)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:c09710a3cbbbe128e1742ed92b41980078d2c723da846aefccc4ec207c7432b2

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


When a nonpublic entity chooses to measure a nonemployee share-based payment award by estimating its expected term and applies the practical expedient in paragraph [718-10-30-20A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A), it must apply the practical expedient to all nonemployee awards that meet the conditions in paragraph [718-10-30-20B](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20B). However, a nonpublic entity may still elect, on an award-by-award basis, to use the contractual term as the expected term as described in paragraph [718-10-30-10A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10A).

##### [718-10-30-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-11)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:a74a233b03a570306a5b6acf210e3ce23bae28563126e78a6ef0c78bf65deff1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A restriction that stems from the forfeitability of instruments to which grantees have not yet earned the right, such as the inability either to exercise a nonvested equity share option or to sell [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)."), is not reflected in estimating the fair value of the related instruments at the grant date. Instead, those restrictions are taken into account by recognizing compensation cost only for awards for which grantees deliver the good or render the service.

##### [718-10-30-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-12)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:05be0688d1ded783867157d5b31a90a4abd2bf6309ee8456c6750aab337e420c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Awards of share-based compensation ordinarily specify 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.") or a [service condition](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.") (or both) that must be satisfied for a grantee to earn the right to benefit from the award. No compensation cost is recognized for instruments forfeited because a service condition or a performance condition is not satisfied (for example, instruments for which the good is not delivered or the service is not rendered). Examples 1 through 2 (see paragraphs

[718-20-55-4 through 55-40](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-4)

) and Example 1 (see paragraph [718-30-55-1](https://asc.understandingaccounting.org/asc/718/30/#718-30-55-1)) provide illustrations of how compensation cost is recognized for awards with service and performance conditions.

##### [718-10-30-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-13)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:9e9e9cec1dd19318673bbe42ee5f438fcd32e9c60ebc4270276d0c27fcda2cc2

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The fair-value-based method described in paragraphs [718-10-30-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6) and

[718-10-30-10 through 30-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10)

uses fair value measurement techniques, and the grant-date share price and other pertinent factors are used in applying those techniques. However, the effects on the grant-date fair value of service and performance conditions that apply only during the employee's requisite service period or a nonemployee's vesting period are reflected based on the outcomes of those conditions. This Topic refers to the required measure as fair value.

##### [718-10-30-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-14)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:d29baed74d43a91c58ed65b4ce70359d1ad282ae931c12a126f9439efe7d3f63

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Some awards contain a [market condition](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."). The effect of a market condition is reflected in the grant-date fair value of an award. (Valuation techniques have been developed to value path-dependent options as well as other options with complex terms. Awards with market conditions, as defined in this Topic, are path-dependent options.) Compensation cost thus is recognized for an award with a market condition provided that the good is delivered or the service is rendered, regardless of when, if ever, the market condition is satisfied.

##### [718-10-30-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-15)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:f9bf63bfe9f5e0d0d895f2fad8776ceb6090da93f59820939ba23c6f3f5d10ba

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Market, performance, and service conditions (or any combination thereof) may affect an award's exercise price, contractual term, quantity, conversion ratio, or other factors that are considered in measuring an award's grant-date fair value. A grant-date fair value shall be estimated for each possible outcome of such a performance or service condition, and the final measure of compensation cost shall be based on the amount estimated at the grant date for the condition or outcome that is actually satisfied. Paragraphs

[718-10-55-64 through 55-66](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-64)

provide additional guidance on the effects of market, performance, and service conditions that affect factors other than vesting or exercisability. Examples 2 (see paragraph [718-20-55-35](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-35)); 3 (see paragraph [718-20-55-41](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-41)); 4 (see paragraph [718-20-55-47](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-47)); 5 (see paragraph [718-20-55-51](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-51)); and 7 (see paragraph [718-20-55-68](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-68)) provide illustrations of accounting for awards with such conditions.

##### [718-10-30-16](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-16)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:c13991e86a8b432ec3601286dadb9da424b0c4bce6ff5b9af658599adba2122f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/).

##### [718-10-30-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-17)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:a4bd41d2e54bdf3f916be17a25acc8e41b4cfe95ec35e07c935af8e39b88fab9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A nonvested equity share or nonvested equity [share unit](https://asc.understandingaccounting.org/glossary/s/#share-unit "A contract under which the holder has the right to convert each unit into a specified number of shares of the issuing entity.") shall be measured at its fair value as if it were vested and issued on the grant date.

##### [718-10-30-18](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-18)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:76c520028e9315e279bf863737442797793a64d64389150cf3903661592f84d1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Nonvested shares granted in share-based payment transactions usually are referred to as [restricted shares](https://asc.understandingaccounting.org/glossary/r/#restricted-share "A share for which sale is contractually or governmentally prohibited for a specified period of time. Most grants of shares to grantees are better termed nonvested shares because the limitation on sale stems solely from the forfeitability of the shares before grantees have satisfied the service, performance, or other condition(s) necessary to earn the rights to the shares. Restricted shares issued for consideration other than for goods or services, on the other hand, are fully paid for immediately. For those shares, there is no period analogous to an employee's requisite service period or a nonemployee's vesting period during which the issuer is unilaterally obligated to issue shares when the purchaser pays for those shares, but the purchaser is not obligated to buy the shares. The term restricted shares refers only to fully vested and outstanding shares whose sale is contractually or governmentally prohibited for a specified period of time. Vested equity instruments that are transferable to a grantee's immediate family members or to a trust that benefits only those family members are restricted if the transferred instruments retain the same prohibition on sale to third parties. See Nonvested Shares."), but this Topic reserves that term for fully vested and outstanding shares whose sale is contractually or governmentally prohibited for a specified period of time.

##### [718-10-30-19](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-19)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:29d0a8ecf965acc3c578fa8040fa6158092ea7f2ca7bbecbef6e636021e7d83a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A restricted share awarded to a grantee, that is, a share that will be restricted after the grantee has a vested right to it, shall be measured at its fair value, which is the same amount for which a similarly restricted share would be issued to third parties. Example 8 (see paragraph [718-20-55-71](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-71)) provides an illustration of accounting for an award of nonvested shares to employees.

#### Nonpublic Entity—Calculated Value for Nonemployee Awards

##### [718-10-30-19A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-19A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:8b2c8626955a0bf6c2a1ea561cf25013043b5310c2f62a3ffbb27c325b02ae35

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Similar to employee equity share options and similar instruments, a nonpublic entity may not be able to reasonably estimate the fair value of nonemployee awards because it is not practicable for the nonpublic entity to estimate the expected volatility of its share price. In that situation, the nonpublic entity shall account for nonemployee equity share options and similar instruments on the basis of a value calculated using the historical volatility of an appropriate industry sector index instead of the expected volatility of the nonpublic entity's share price (the calculated value) in accordance with paragraph [718-10-30-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20). A nonpublic entity's use of calculated value shall be consistent between employee share-based payment transactions and nonemployee share-based payment transactions.

#### Nonpublic Entity—Calculated Value

##### [718-10-30-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:2380641f3d01caa71f7b3869be53a6d60afb8f3a06ca259a659e8cfc4f9b31ce

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A nonpublic entity may not be able to reasonably estimate the fair value of its equity share options and similar instruments because it is not practicable for it to estimate the expected volatility of its share price. In that situation, the entity shall account for its equity share options and similar instruments based on a value calculated using the historical volatility of an appropriate industry sector index instead of the expected volatility of the entity's share price (the calculated value). Throughout the remainder of this Topic, provisions that apply to accounting for share options and similar instruments at fair value also apply to calculated value. Paragraphs

[718-10-55-51 through 55-58](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-51)

and Example 9 (see paragraph [718-20-55-76](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-76)) provide additional guidance on applying the calculated value method to equity share options and similar instruments granted by a nonpublic entity.

#### Nonpublic Entity—Practical Expedient for Expected Term

##### [718-10-30-20A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:1a3dc65f80b87bd702de776fdb10bc68d92f79e34471d6851907be64021fe321

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For an award that meets the conditions in paragraph [718-10-30-20B](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20B), a nonpublic entity may make an entity-wide accounting policy election to estimate the expected term using the following practical expedient:

1.  a
    
    If vesting is only dependent upon a service condition, a nonpublic entity shall estimate the expected term as the midpoint between the employee's requisite service period or the nonemployee's vesting period and the contractual term of the award.
    
2.  b
    
    If vesting is dependent upon satisfying a performance condition, a nonpublic entity first would determine whether the performance condition is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") of being achieved.
    
    1.  1
        
        If the nonpublic entity concludes that the performance condition is probable of being achieved, the nonpublic entity shall estimate the expected term as the midpoint between the employee's requisite service period (a nonpublic entity shall consider the guidance in paragraphs
        
        [718-10-55-69 through 55-79](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-69)
        
        when determining the requisite service period of the award) or the nonemployee's vesting period and the contractual term.
        
    2.  2
        
        If the nonpublic entity concludes that the performance condition is not probable of being achieved, the nonpublic entity shall estimate the expected term as either:
        
        1.  i
            
            The contractual term if the service period is implied (that is, the requisite service period or the nonemployee's vesting period is not explicitly stated but inferred based on the achievement of the performance condition at some undetermined point in the future)
            
        2.  ii
            
            The midpoint between the employee's requisite service period or the nonemployee's vesting period and the contractual term if the requisite service period is stated explicitly.
            

Paragraph [718-10-55-50A](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-50A) provides implementation guidance on the practical expedient.

##### [718-10-30-20B](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20B)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:f40b30c3e5eff8d418e553761a9dc3f7ecec9affe679a8fa125c3a08ceedbf00

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A nonpublic entity that elects to apply the practical expedient in paragraph [718-10-30-20A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A) shall apply the practical expedient to a share option or similar award that has all of the following characteristics:

1.  a
    
    The share option or similar award is granted at the money.
    
2.  b
    
    The grantee has only a limited time to exercise the award (typically 30-90 days) if the grantee no longer provides goods, terminates service after vesting, or ceases to be a customer.
    
3.  c
    
    The grantee can only exercise the award. The grantee cannot sell or hedge the award.
    
4.  d
    
    The award does not include a market condition.
    

A nonpublic entity that elects to apply the practical expedient in paragraph [718-10-30-20A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A) may always elect to use the contractual term as the expected term when estimating the fair value of a nonemployee award as described in paragraph [718-10-30-10A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10A). However, a nonpublic entity must apply the practical expedient in paragraph [718-10-30-20A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A) for all nonemployee awards that have all the characteristics listed in this paragraph if that nonpublic entity does not elect to use the contractual term as the expected term and that nonpublic entity elects the accounting policy election to apply the practical expedient in paragraph [718-10-30-20A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A).

#### Nonpublic Entity—Practical Expedient for Current Price

##### [718-10-30-20C](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20C)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:1ea568e89db5d55ffeeecd98a7bbecab948b11208f9375c3bf0bb2d02d334c6e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As a practical expedient, a [nonpublic entity](https://asc.understandingaccounting.org/glossary/n/#nonpublic-entity "Any entity other than one that meets any of the following criteria: Has equity securities that trade in a public market either on a stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally Makes a filing with a regulatory agency in preparation for the sale of any class of equity securities in a public market Is controlled by an entity covered by the preceding criteria. An entity that has only debt securities trading in a public market (or that has made a filing with a regulatory agency in preparation to trade only debt securities) is a nonpublic entity.") may use a value determined by the reasonable application of a reasonable valuation method as the current price of its underlying share for purposes of determining the fair value of an [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.") that is classified as equity in accordance with paragraphs

[718-10-25-6 through 25-18](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-6)

at [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.") or upon a [modification](https://asc.understandingaccounting.org/glossary/m/#modification "A change in the terms or conditions of a share-based payment award."). This practical expedient may not be used for awards classified as liabilities in accordance with paragraphs

[718-10-25-6 through 25-18](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-6)

.

##### [718-10-30-20D](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20D)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:8ec694896c899119841c55b46605053c47027e9da19afc15587f3bd98e7725c5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The determination of whether a valuation method is reasonable, or whether an application of a valuation method is reasonable, shall be made based on the facts and circumstances as of the [measurement date](https://asc.understandingaccounting.org/glossary/m/#measurement-date "The date at which the equity share price and other pertinent factors, such as expected volatility, that enter into measurement of the total recognized amount of compensation cost for an award of share-based payment are fixed."). Factors to be considered under a reasonable valuation method include, as applicable:

1.  a
    
    The value of tangible and intangible assets of the nonpublic entity
    
2.  b
    
    The present value of anticipated future cash flows of the nonpublic entity
    
3.  c
    
    The market value of stock or equity interests in similar corporations and other entities engaged in trades or businesses substantially similar to those engaged in by the nonpublic entity for which the stock is to be valued, the value of which can be readily determined through nondiscretionary, objective means (such as through trading prices on an established securities market or an amount paid in an arm's-length private transaction)
    
4.  d
    
    Recent arm's-length transactions involving the sale or transfer of stock or equity interests of the nonpublic entity
    
5.  e
    
    Other relevant factors such as control premiums or discounts for lack of marketability and whether the valuation method is used for other purposes that have a material economic effect on the nonpublic entity, its stockholders, or its creditors
    
6.  f
    
    The nonpublic entity's consistent use of a valuation method to determine the value of its stock or assets for other purposes, including for purposes unrelated to compensation of service providers.

##### [718-10-30-20E](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20E)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:0c92783919e05f3d2d6fdb490a022f1e77cc25c26c0c2c471c05bbe05b7bf08e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The use of a valuation method is not reasonable if that valuation method does not take into consideration when applying its methodology all available information material to the value of the nonpublic entity.

##### [718-10-30-20F](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20F)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:977b1c246be52d3e1582ff0856dca021a2ceaff4ecd9032dec321fda5ec58ddc

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The use of a value previously calculated under a valuation method is not reasonable as of a later date if either of the following conditions is met:

1.  a
    
    The calculation fails to reflect information available after the date of the calculation that may materially affect the value of the nonpublic entity (for example, the resolution of material litigation or the issuance of a patent).
    
2.  b
    
    The value was calculated with respect to a date that is more than 12 months earlier than the date for which the valuation is being used.

##### [718-10-30-20G](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20G)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:5ccbff80602ab37af5b1eae1a69748ad0cd727f05edd2233ceacc0bf047d280e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A valuation performed in accordance with Treasury Regulation Section 1.409A-1(b)(5)(iv)(B) having the characteristics described in paragraphs

[718-10-30-20D through 30-20F](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20D)

is an example of a valuation that is reasonable under the practical expedient in those paragraphs.

##### [718-10-30-20H](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20H)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:aba5c9613ae414358981e69d1b25039d0691945083dc62092abda5b58407987a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A nonpublic entity that elects the practical expedient in paragraphs

[718-10-30-20C through 30-20F](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20C)

shall do so on a measurement-date-by-measurement-date basis. That is, the practical expedient shall be applied to all share-based awards within the scope of the practical expedient having the same underlying share and the same measurement date.

#### Difficulty of Estimation

##### [718-10-30-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-21)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:c1cd85a1020ac6d36d8c3be4f554be20e528ce41f1960738ab90c95fed9eef0d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


It should be possible to reasonably estimate the fair value of most equity share options and other equity instruments at the date they are granted. Section 718-10-55 illustrates techniques for estimating the fair values of several instruments with complicated features. However, in rare circumstances, it may not be possible to reasonably estimate the fair value of an equity share option or other equity instrument at the grant date because of the complexity of its terms.

##### [718-10-30-22](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-22)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:fd7238078e0ad18d747eba522701df7fbec4484fcad07502233d7e4f3214e873

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An equity instrument for which it is not possible to reasonably estimate fair value at the grant date shall be accounted for based on its intrinsic value (see paragraph [718-20-35-1](https://asc.understandingaccounting.org/asc/718/20/#718-20-35-1) for measurement after issue date).

#### Reload and Contingent Features

##### [718-10-30-23](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-23)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:e220449e852b99feeeab67595c9b8b358262f5243dab3dd9192041ab8bf39c34

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The fair value of each award of equity instruments, including an award of options with a reload feature (reload options), shall be measured separately based on its terms and the share price and other pertinent factors at the grant date. The effect of a reload feature in the terms of an award shall not be included in estimating the grant-date fair value of the award. Rather, a subsequent grant of reload options pursuant to that provision shall be accounted for as a separate award when the reload options are granted.

##### [718-10-30-24](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-24)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:80306eb34778563f2728ff378193da714495c3ca67bc95d12a36c097bb42e5f1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A contingent feature of an award that might cause a grantee to return to the entity either equity instruments earned or realized gains from the sale of equity instruments earned for consideration that is less than fair value on the date of transfer (including no consideration), such as a clawback feature (see paragraph [718-10-55-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-8)), shall not be reflected in estimating the grant-date fair value of an equity instrument.

#### Requisite Service Period

##### [718-10-30-25](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-25)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:9f898b5930d1705d2f4fc00970cd8faf67d6a6518832f2180712d1e9149d8cc8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall make its initial best estimate of the requisite service period at the grant date (or at the [service inception date](https://asc.understandingaccounting.org/glossary/s/#service-inception-date "The date at which the employee's requisite service period or the nonemployee's vesting period begins. The service inception date usually is the grant date, but the service inception date may differ from the grant date (see Example 6 [see paragraph 718-10-55-107] for an illustration of the application of this term to an employee award)."), if that date precedes the grant date) and shall base accruals of compensation cost on that period.

##### [718-10-30-26](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-26)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:ec78da0e865a5a38e77b57b8a368911ad297a8935febad5c8d8b31eeb3ad7ed7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The initial best estimate and any subsequent adjustment to that estimate of the requisite service period for an award with a combination of market, performance, or service conditions shall be based on an analysis of all of the following:

1.  a
    
    All vesting and exercisability conditions
    
2.  b
    
    All explicit, implicit, and derived service periods
    
3.  c
    
    The probability that performance or service conditions will be satisfied.

#### Market, Performance, and Service Conditions

##### [718-10-30-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-27)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:52b12386aefdfdda5908978c9e77de572aac68e0874bc5c572decc8d52c8f34e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Performance or service conditions that affect vesting are not reflected in estimating the fair value of an award at the grant date because those conditions are restrictions that stem from the forfeitability of instruments to which grantees have not yet earned the right. However, the effect of a market condition is reflected in estimating the fair value of an award at the grant date (see paragraph [718-10-30-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-14)). For purposes of this Topic, a market condition is not considered to be a vesting condition, and an award is not deemed to be forfeited solely because a market condition is not satisfied.

##### [718-10-30-28](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-28)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:34.633Z to 2026-09-10T01:03:34.633Z

Record version: sha256:59e65d0d7309b2e3154b0b4221c9f43960e1bde568e0a5e04bcd2535e50ec158

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In some cases, the terms of an award may provide that a performance target that affects vesting could be achieved after an employee completes the requisite service period or a nonemployee satisfies a vesting period. That is, the grantee would be eligible to vest in the award regardless of whether the grantee is rendering service or delivering goods on the date the performance target is achieved. A performance target that affects vesting and that could be achieved after an employee's requisite service period or a nonemployee's vesting period shall be accounted for as a performance condition. As such, the performance target shall not be reflected in estimating the fair value of the award at the grant date. Compensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the service or goods already have been provided. If the performance target becomes probable of being achieved before the end of the employee's requisite service period or the nonemployee's vesting period, the remaining unrecognized compensation cost for which service or goods have not yet been provided shall be recognized prospectively over the remaining employee's requisite service period or the nonemployee's vesting period. The total amount of compensation cost recognized during and after the employee's requisite service period or the nonemployee's vesting period shall reflect the number of awards that are expected to [vest](https://asc.understandingaccounting.org/glossary/v/#vest "To earn the rights to. A share-based payment award becomes vested at the date that the grantee's right to receive or retain shares, other instruments, or cash under the award is no longer contingent on satisfaction of either a service condition or a performance condition. Market conditions are not vesting conditions. The stated vesting provisions of an award often establish the employee's requisite service period or the nonemployee's vesting period, and an award that has reached the end of the applicable period is vested. However, as indicated in the definition of requisite service period and equally applicable to a nonemployee's vesting period, the stated vesting period may differ from those periods in certain circumstances. Thus, the more precise terms would be options, shares, or awards for which the requisite good has been delivered or service has been rendered and the end of the employee's requisite service period or the nonemployee's vesting period.") based on the performance target and shall be adjusted to reflect those awards that ultimately vest. An entity that has an accounting policy to account for forfeitures when they occur in accordance with paragraph [718-10-35-1D](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D) or [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3) shall reverse compensation cost previously recognized, in the period the award is forfeited, for an award that is forfeited before completion of the employee's requisite service period or the nonemployee's vesting period. The employee's requisite service period and the nonemployee's vesting period end when the grantee can cease rendering service or delivering goods and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the employee's requisite service period or the nonemployee's vesting period.

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:87d54551f32efb412c3dc63625efd1cffe42665e6c631f7a000bbe63390ac529

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-35: 35 Subsequent Measurement

[Read section](https://asc.understandingaccounting.org/asc/718/10/#35-subsequent-measurement)

SEC content: no

##### [718-10-35-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:809e27f6bcb5f4ddbd1855d535b428b7dfd86552a235350223a606cf30dcee30

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Subtopic is interrelated with Subtopics 718-20 and 718-30. Material that equally applies to both liabilities and equity is generally found in this Subtopic. However, material may have been placed in one of the other Subtopics.

#### Recognition of Nonemployee Compensation Costs

##### [718-10-35-1A](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:fe388213d2c583c01f639e804b7ec094d235c3a4329e0cadb735b3037e0c5347

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A grantor shall recognize the goods acquired or services received in a share-based payment transaction with nonemployees when it obtains the goods or as services are received. A grantor may need to recognize an asset before it actually receives goods or services if it first exchanges a share-based payment for an enforceable right to receive those goods or services. Nevertheless, the goods or services themselves are not recognized before they are received.

##### [718-10-35-1B](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1B)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:82525509d943fed84edbf1f066a278580cc578564b8b4dc72ad2ec478a966ba0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If fully vested, nonforfeitable equity instruments are granted at the date the grantor and nonemployee enter into an agreement for goods or services (no specific performance is required by the nonemployee to retain those equity instruments), then, because of the elimination of any obligation on the part of the nonemployee to earn the equity instruments, a grantor shall recognize the equity instruments when they are granted (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph [718-10-45-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-45-3)) depends on the specific facts and circumstances.

##### [718-10-35-1C](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1C)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:64cd3917c44ab67e36dc347b15c67cd56d9772423abdc736a03e5de6223cae1b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity may grant fully vested, nonforfeitable equity instruments that are exercisable by the nonemployee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the nonemployee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services instead of paying with, or using, the share-based payment awards.

##### [718-10-35-1D](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:1b63cfc31110f88955615847ff1a6f27a91d31573adb3b03a29f5f321da0aaef

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The total amount of compensation cost recognized for share-based payment awards to nonemployees shall be based on the number of instruments for which a good has been delivered or a service has been rendered. To determine the amount of compensation cost to be recognized in each period, an entity shall make an entity-wide accounting policy election for all nonemployee share-based payment awards, including share-based payment awards granted to customers, to do either of the following:

1.  a
    
    Estimate the number of forfeitures expected to occur. The entity shall base initial accruals of compensation cost on the estimated number of nonemployee share-based payment awards for which a good is expected to be delivered or a service is expected to be rendered. The entity shall revise that estimate if subsequent information indicates that the actual number of instruments is likely to differ from previous estimates. The cumulative effect on current and prior periods of a change in the estimates shall be recognized in compensation cost in the period of the change.
    
2.  b
    
    Recognize the effect of forfeitures in compensation cost when they occur. Previously recognized compensation cost for a nonemployee share-based payment award shall be reversed in the period that the award is forfeited.
    

Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:

[606-10-65-2](https://asc.understandingaccounting.org/asc/606/10/#606-10-65-2)The total amount of compensation cost recognized for share-based payment awards to nonemployees shall be based on the number of instruments for which a good has been delivered or a service has been rendered. To determine the amount of compensation cost to be recognized in each period, an entity shall make an entity-wide accounting policy election for nonemployee share-based payment awards, including share-based payment awards granted to customers in exchange for a distinct good or service, to do either of the following:

1.  a
    
    Estimate the number of forfeitures expected to occur. The entity shall base initial accruals of compensation cost on the estimated number of nonemployee share-based payment awards for which a good is expected to be delivered or a service is expected to be rendered. The entity shall revise that estimate if subsequent information indicates that the actual number of instruments is likely to differ from previous estimates. The cumulative effect on current and prior periods of a change in the estimates shall be recognized in compensation cost in the period of the change.
    
2.  b
    
    Recognize the effect of forfeitures in compensation cost when they occur. Previously recognized compensation cost for a nonemployee share-based payment award shall be reversed in the period that the award is forfeited.
    

For share-based consideration payable to a customer that is not in exchange for a distinct good or service (or that is in exchange for a distinct good or service and can result in a reduction of the transaction price in accordance with paragraph [606-10-32-26](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-26)), a grantor shall estimate the number of forfeitures expected to occur in accordance with paragraph [718-10-35-1D(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D). If share-based consideration payable to a customer is a payment for a distinct good or service from the customer and the grantor accounts for any portion of the share-based consideration as a reduction of the transaction price in accordance with paragraph [606-10-32-26](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-26), the grantor shall estimate the number of forfeitures expected to occur for the entire award (including the portion that is not accounted for as a reduction of the transaction price).

##### [718-10-35-1E](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1E)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:d6d9005fae278ef491379fd301611785779a371db80162a40c18c4af389a1edd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A recognized asset or expense shall not be reversed if a stock option that the nonemployee has the right to exercise expires unexercised.

##### [718-10-35-1F](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1F)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:a2ed6265cd86138e0a2e6378fdefa67a79a2e7a5c294edc4a1537dd83ee7d1d4

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A grantor shall recognize either a corresponding increase in equity or a liability, depending on whether the instruments granted satisfy the equity or liability classification criteria established in paragraphs [718-10-25-6 through 25-19A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-6). As the goods or services are disposed of or consumed, the grantor shall recognize the related cost. For example, when inventory is sold, the cost is recognized in the income statement as cost of goods sold, and as services are consumed, the cost usually is recognized in determining net income of that period, for example, as expenses incurred for services. In some circumstances, the cost of services (or goods) 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.

#### Recognition of Employee Compensation Costs over the Requisite Service Period

##### [718-10-35-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:8d958e93a3b5fa716d9c60d8ad352e3a092e23ea3465580c1fcadddc00c82a04

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The compensation cost for an [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.") of share-based [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.") compensation classified as equity shall be recognized over the [requisite service period](https://asc.understandingaccounting.org/glossary/r/#requisite-service-period "The period or periods during which an employee is required to provide service in exchange for an award under a share-based payment arrangement. The service that an employee is required to render during that period is referred to as the requisite service. The requisite service period for an award that has only a service condition is presumed to be the vesting period, unless there is clear evidence to the contrary. If an award requires future service for vesting, the entity cannot define a prior period as the requisite service period. Requisite service periods may be explicit, implicit, or derived, depending on the terms of the share-based payment award."), with a corresponding credit to equity (generally, paid-in capital). The requisite service period is the period during which an employee is required to provide service in exchange for an award, which often is the vesting period. The requisite service period is estimated based on an analysis of the [terms of the share-based payment award](https://asc.understandingaccounting.org/glossary/t/#terms-of-a-share-based-payment-award "The contractual provisions that determine the nature and scope of a share-based payment award. For example, the exercise price of share options is one of the terms of an award of share options. As indicated in paragraph 718-10-25-15, the written terms of a share-based payment award and its related arrangement, if any, usually provide the best evidence of its terms. However, an entity's past practice or other factors may indicate that some aspects of the substantive terms differ from the written terms. The substantive terms of a share-based payment award, as those terms are mutually understood by the entity and a party (either an employee or a nonemployee) who receives the award, provide the basis for determining the rights conveyed to a party and the obligations imposed on the issuer, regardless of how the award and related arrangement, if any, are structured. See paragraph 718-10-30-5.").

##### [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:7797b5382d752d9babcdac3ffa4f96a1e507d1618150dd7221b0246321a77682

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The total amount of compensation cost recognized at the end of the requisite service period for an award of share-based compensation shall be based on the number of instruments for which the requisite service has been rendered (that is, for which the requisite service period has been completed). Previously recognized compensation cost shall not be reversed if an employee [share option](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.") (or [share unit](https://asc.understandingaccounting.org/glossary/s/#share-unit "A contract under which the holder has the right to convert each unit into a specified number of shares of the issuing entity.")) for which the requisite service has been rendered expires unexercised (or unconverted). To determine the amount of compensation cost to be recognized in each period, an entity shall make an entity-wide accounting policy election for all employee share-based payment awards to do either of the following:

1.  a
    
    Estimate the number of awards for which the requisite service will not be rendered (that is, estimate the number of forfeitures expected to occur). The entity shall base initial accruals of compensation cost on the estimated number of instruments for which the requisite service is expected to be rendered. The entity shall revise that estimate if subsequent information indicates that the actual number of instruments is likely to differ from previous estimates. The cumulative effect on current and prior periods of a change in the estimated number of instruments for which the requisite service is expected to be or has been rendered shall be recognized in compensation cost in the period of the change.
    
2.  b
    
    Recognize the effect of awards for which the requisite service is not rendered when the award is forfeited (that is, recognize the effect of forfeitures in compensation cost when they occur). Previously recognized compensation cost for an award shall be reversed in the period that the award is forfeited.

##### [718-10-35-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:fd931984fc6dd16678211bd01efb84ac6b04fab778361bb686f7fa638b8e1058

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall reverse previously recognized compensation cost for an award with a [market condition](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.") only if the requisite service is not rendered.

#### Estimating the Requisite Service Period for Employee Awards

##### [718-10-35-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:4a24ed0c8fb187da6fa46e2a2867a61ee4f581596c1aae873d578d7066420ee5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The requisite service period for employee awards may be explicit or it may be implicit, being inferred from an analysis of other terms in the award, including other explicit service or performance conditions. The requisite service period for an award that contains a market condition can be derived from certain valuation techniques that may be used to estimate grant-date [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.") (see paragraph [718-10-55-71](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-71)). An award may have one or more explicit, implicit, or derived service periods; however, an award may have only one requisite service period for accounting purposes unless it is accounted for as in-substance multiple awards. An award with a graded vesting schedule that is accounted for as in-substance multiple awards is an example of an award that has more than one requisite service period (see paragraph [718-10-35-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-8)). Paragraphs

[718-10-55-69 through 55-79](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-69)

and

[718-10-55-93 through 55-106](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-93)

provide guidance on estimating the requisite service period and provide examples of how that period shall be estimated if an award's terms include more than one [explicit](https://asc.understandingaccounting.org/glossary/e/#explicit-service-period "A service period that is explicitly stated in the terms of a share-based payment award. For example, an award stating that it vests after three years of continuous employee service from a given date (usually the grant date) has an explicit service period of three years. See Derived Service Period, Implicit Service Period, and Requisite Service Period."), [implicit](https://asc.understandingaccounting.org/glossary/i/#implicit-service-period "A service period that is not explicitly stated in the terms of a share-based payment award but that may be inferred from an analysis of those terms and other facts and circumstances. For instance, if an award of share options vests upon the completion of a new product design and it is probable that the design will be completed in 18 months, the implicit service period is 18 months. See Derived Service Period, Explicit Service Period, and Requisite Service Period."), or [derived service period](https://asc.understandingaccounting.org/glossary/d/#derived-service-period "A service period for an award with a market condition that is inferred from the application of certain valuation techniques used to estimate fair value. For example, the derived service period for an award of share options that the employee can exercise only if the share price increases by 25 percent at any time during a 5-year period can be inferred from certain valuation techniques. In a lattice model, that derived service period represents the duration of the median of the distribution of share price paths on which the market condition is satisfied. That median is the middle share price path (the midpoint of the distribution of paths) on which the market condition is satisfied. The duration is the period of time from the service inception date to the expected date of satisfaction (as inferred from the valuation technique). If the derived service period is three years, the estimated requisite service period is three years and all compensation cost would be recognized over that period, unless the market condition was satisfied at an earlier date. Compensation cost would not be recognized beyond three years even if after the grant date the entity determines that it is not probable that the market condition will be satisfied within that period. Further, an award of fully vested, deep out-of-the-money share options has a derived service period that must be determined from the valuation techniques used to estimate fair value. See Explicit Service Period, Implicit Service Period, and Requisite Service Period.").

##### [718-10-35-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-6)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:37cc2970a99c735db61dad811dee27ed80cd1171ce77cd49bbcd6b0a69c61b0f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The [service inception date](https://asc.understandingaccounting.org/glossary/s/#service-inception-date "The date at which the employee's requisite service period or the nonemployee's vesting period begins. The service inception date usually is the grant date, but the service inception date may differ from the grant date (see Example 6 [see paragraph 718-10-55-107] for an illustration of the application of this term to an employee award).") is the beginning of the requisite service period. If the service inception date precedes 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.") (see paragraph [718-10-55-108](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-108)), accrual of compensation cost for periods before the grant date shall be based on the fair value of the award at the reporting date. In the period in which the grant date occurs, cumulative compensation cost shall be adjusted to reflect the cumulative effect of measuring compensation cost based on fair value at the grant date rather than the fair value previously used at the service inception date (or any subsequent reporting date). Example 6 (see paragraph [718-10-55-107](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-107)) illustrates the concept of service inception date and how it is to be applied.

##### [718-10-35-7](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-7)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:f475d0406abcf584250f9bfb9ab7840b53dab5f766cb8bc10065d521def9a946

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall adjust that initial best estimate in light of changes in facts and circumstances. Whether and how the initial best estimate of the requisite service period is adjusted depends on both the nature of the conditions identified in paragraph [718-10-30-26](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-26) and the manner in which they are combined, for example, whether an award vests or becomes exercisable when either a market or 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.") is satisfied or whether both conditions must be satisfied. Paragraphs

[718-10-55-69 through 55-79](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-69)

provide guidance on adjusting the initial estimate of the requisite service period.

#### Graded Vesting Employee Awards

##### [718-10-35-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-8)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:fe7e254b4c7a6f4d3a39a0dce82279632ef7de4f4f9dd1d392497e99f939b4a0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall make a policy decision about whether to recognize compensation cost for an employee award with only service conditions that has a graded vesting schedule in either of the following ways:

1.  a
    
    On a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards
    
2.  b
    
    On a straight-line basis over the requisite service period for the entire award (that is, over the requisite service period of the last separately vesting portion of the award).
    

However, the amount of compensation cost recognized at any date must at least equal the portion of the grant-date value of the award that is vested at that date. Example 1, Case B (see paragraph [718-20-55-25](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-25)) provides an illustration of the accounting for an award with a graded vesting schedule.

#### Awards May Become Subject to Other Guidance

##### [718-10-35-9](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-9)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:df94096c00d984158f51b5dd476324ef4e808f63bf866d77cb11780f62a45ad4

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraphs

[718-10-35-10 through 35-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10)

are intended to apply to those instruments issued in [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.") with employees and nonemployees accounted for under this Topic, and to instruments exchanged in a business combination for share-based payment awards of the acquired business that were originally granted to grantees of the acquired business and are outstanding as of the date of the business combination.

##### [718-10-35-9A](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-9A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:42b3c583e9312465b1b4eb7086497abed6ad624c0cc15a5660eef4e4759a28b0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Paragraph superseded by Accounting Standards Update No. 2020-06](https://asc.understandingaccounting.org/updates/asu-2020-06/).

##### [718-10-35-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:3198ad616c4c08456a938735749062ce65347b28c0a990189bd75f1245d31b25

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


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.")or a [convertible security](https://asc.understandingaccounting.org/glossary/c/#convertible-security "A security that is convertible into another security based on a conversion rate. For example, convertible preferred stock that is convertible into common stock on a two-for-one basis (two shares of common for each share of preferred).")issued to a grantee that is subject to initial recognition and measurement guidance within this Topic shall continue to be subject to the recognition and measurement provisions of this Topic throughout the life of the instrument, unless its terms are modified after any of the following:

1.  a
    
    [Subparagraph superseded by Accounting Standards Update No. 2019-08](https://asc.understandingaccounting.org/updates/asu-2019-08/).
    
2.  b
    
    [Subparagraph superseded by Accounting Standards Update No. 2019-08](https://asc.understandingaccounting.org/updates/asu-2019-08/).
    
3.  c
    
    A grantee vests in the award and is no longer providing goods or services.
    
4.  d
    
    A grantee vests in the award and is no longer a customer.
    
5.  e
    
    A grantee is no longer an employee.

##### [718-10-35-10A](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:97cb0a1a8c1c5a4cebbb704f47d64d0ece72414ecd11718e09e77dd690ee2d29

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Only for purposes of paragraph [718-10-35-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10), a [modification](https://asc.understandingaccounting.org/glossary/m/#modification "A change in the terms or conditions of a share-based payment award.") does not include a change to the terms of an award if that change is made solely to reflect an [equity restructuring](https://asc.understandingaccounting.org/glossary/e/#equity-restructuring "A nonreciprocal transaction between an entity and its shareholders that causes the per-share fair value of the shares underlying an option or similar award to change, such as a stock dividend, stock split, spinoff, rights offering, or recapitalization through a large, nonrecurring cash dividend.") provided that both of the following conditions are met:

1.  a
    
    There is no increase in fair value of the award (or the ratio of [intrinsic value](https://asc.understandingaccounting.org/glossary/i/#intrinsic-value "The amount by which the fair value of the underlying stock exceeds the exercise price of an option. For example, an option with an exercise price of $20 on a stock whose current market price is $25 has an intrinsic value of $5. (A nonvested share may be described as an option on that share with an exercise price of zero. Thus, the fair value of a share is the same as the intrinsic value of such an option on that share.)") to the exercise price of the award is preserved, that is, the holder is made whole) or the antidilution provision is not added to the terms of the award in contemplation of an equity restructuring.
    
2.  b
    
    All holders of the same class of equity instruments (for example, stock options) are treated in the same manner.

##### [718-10-35-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-11)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:ae360a0cdb0dbc634a5458f7cd1168236aa62b3914f301f4c67b982cce514757

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Other modifications of that instrument that take place after a grantee vests in the award and is no longer providing goods or services, is no longer a customer, or is no longer an employee should be subject to the modification guidance in paragraph [718-10-35-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-14). Following modification, recognition and measurement of the instrument shall be determined through reference to other applicable GAAP.

##### [718-10-35-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-12)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:8c53657b4c3898b87b8109de250600d8c7bc615e2b5d49844d6f7c3d3a6a89ca

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Once the classification of an instrument is determined, the recognition and measurement provisions of this Topic shall be applied until the instrument ceases to be subject to the requirements discussed in paragraph [718-10-35-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10). Topic 480 or other applicable GAAP, such as Topic 815, applies to a freestanding financial instrument that was issued under a share-based payment arrangement but that is no longer subject to this Topic. This guidance is not intended to suggest that all freestanding financial instruments shall be accounted for as liabilities pursuant to Topic 480, but rather that freestanding financial instruments issued in share-based payment transactions may become subject to that Topic or other applicable GAAP depending on their substantive characteristics and when certain criteria are met.

##### [718-10-35-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-13)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:d73a68f913805b42eaf79306c8faef0e7116a3581435e26a93b5b5a4dd29a82d

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/).

##### [718-10-35-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-14)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:29ea61471d80b78312b37c053742caa4619525b13f5a47bd28e3010a1397003e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity may modify (including cancel and replace) or [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.") a fully vested, freestanding financial instrument after it becomes subject to Topic 480 or other applicable GAAP. Such a modification or settlement shall be accounted for under the provisions of this Topic unless it applies equally to all financial instruments of the same class regardless of the holder of the financial instrument. Following the modification, the instrument continues to be accounted for under that Topic or other applicable GAAP. A modification or settlement of a class of financial instrument that is designed exclusively for and held only by grantees (or their beneficiaries) may stem from the employment or vendor relationship depending on the terms of the modification or settlement. Thus, such a modification or settlement may be subject to the requirements of this Topic. See paragraph [718-10-35-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-10) for a discussion of changes to awards made solely to reflect an equity restructuring.

#### Change in Classification Due to Change in Probable Settlement Outcome

##### [718-10-35-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-15)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:38.493Z to 2026-09-10T01:03:38.493Z

Record version: sha256:e054f6f1e79760445bc100c1ec21d3b12e0078cae3e649d5678fbc8bb7980f67

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An option or similar instrument that is classified as equity, but subsequently becomes a liability because the contingent cash settlement event is probable of occurring, shall be accounted for similar to a modification from an equity to liability award. That is, on the date the contingent event becomes probable of occurring (and therefore the award must be recognized as a liability), the entity recognizes a share-based liability equal to the portion of the award attributed to past performance (which reflects any provision for acceleration of vesting) multiplied by the award's fair value on that date. To the extent the liability equals or is less than the amount previously recognized in equity, the offsetting debit is a charge to equity. To the extent that the liability exceeds the amount previously recognized in equity, the excess is recognized as compensation cost. The total recognized compensation cost for an award with a contingent cash settlement feature shall at least equal the fair value of the award at the grant date. The guidance in this paragraph is applicable only for options or similar instruments issued as part of compensation arrangements. That is, the guidance included in this paragraph is not applicable, by analogy or otherwise, to instruments outside [share-based payment arrangements](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-arrangements "An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements.").

Source downloaded (UTC): 2026-09-10T01:03:42.291Z to 2026-09-10T01:03:42.291Z

Record version: sha256:46ece3f530f8386e462b6823434589f526f158eebf922b4341d06887d66d79de

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-45: 45 Other Presentation Matters

[Read section](https://asc.understandingaccounting.org/asc/718/10/#45-other-presentation-matters)

SEC content: no

#### Earnings per Share

##### [718-10-45-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-45-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:42.291Z to 2026-09-10T01:03:42.291Z

Record version: sha256:f843b89d27dd2da1c97390b04061b79849a94acbb0b97081eee977b3fbed7346

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Topic 260 requires that equity share options, [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)."), and similar equity instruments granted under share-based payment transactions be treated as potential common shares in computing diluted earnings per share (EPS). Diluted EPS shall be based on the actual number of options or shares granted and not yet forfeited regardless of the entity's accounting policy for forfeitures in accordance with paragraphs [718-10-35-1D](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D) and [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3), unless doing so would be antidilutive. If [vesting](https://asc.understandingaccounting.org/glossary/v/#vest "To earn the rights to. A share-based payment award becomes vested at the date that the grantee's right to receive or retain shares, other instruments, or cash under the award is no longer contingent on satisfaction of either a service condition or a performance condition. Market conditions are not vesting conditions. The stated vesting provisions of an award often establish the employee's requisite service period or the nonemployee's vesting period, and an award that has reached the end of the applicable period is vested. However, as indicated in the definition of requisite service period and equally applicable to a nonemployee's vesting period, the stated vesting period may differ from those periods in certain circumstances. Thus, the more precise terms would be options, shares, or awards for which the requisite good has been delivered or service has been rendered and the end of the employee's requisite service period or the nonemployee's vesting period.") in or the ability to exercise (or retain) an [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.") is contingent on a performance or [market condition](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."), such as the level of future earnings, the shares or share options shall be treated as contingently issuable shares in accordance with paragraphs

[260-10-45-48 through 45-57](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-48)

. If equity share options or other equity instruments are outstanding for only part of a period, the shares issuable shall be weighted to reflect the portion of the period during which the equity instruments are outstanding.

##### [718-10-45-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-45-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:42.291Z to 2026-09-10T01:03:42.291Z

Record version: sha256:54c3857bd77139e85cf354eb3419a8c511d00f0973ee1c567563b408ecaf9b3f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraphs

[260-10-45-29 through 45-34](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-29)

and Example 8 (see paragraph [260-10-55-68](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-68)) provide guidance on applying the treasury stock method for equity instruments granted in [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.") in determining diluted EPS.

#### Classification of Assets Other Than a Note or a Receivable for Nonemployee Awards

##### [718-10-45-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-45-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:42.291Z to 2026-09-10T01:03:42.291Z

Record version: sha256:76df409e049cd5438a3c4240c37af665597c5da2a47b1315226d20717be62013

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As discussed in paragraph [718-10-35-1B](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1B), a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, nonforfeitable, nonemployee share-based payment awards that are [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.") at the date the grantor and nonemployee enter into an agreement for goods or services (and no specific performance is required by the nonemployee to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the award. The transferability (or lack thereof) of the awards shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which awards are transferred to nonemployees in exchange for goods or services.

Source downloaded (UTC): 2026-09-10T01:03:46.036Z to 2026-09-10T01:03:46.036Z

Record version: sha256:d26568288e8db4914af02fc33071b0f682777e28f305b8b0b14deb03647c1d8a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-50: 50 Disclosure

[Read section](https://asc.understandingaccounting.org/asc/718/10/#50-disclosure)

SEC content: no

##### [718-10-50-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:46.036Z to 2026-09-10T01:03:46.036Z

Record version: sha256:69ec3ed67005cae34d93794af6b323e96af612e4922be7f8ea77c3182447182b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity with one or more [share-based payment arrangements](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-arrangements "An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements.") shall disclose information that enables users of the financial statements to understand all of the following:

1.  a
    
    The nature and terms of such arrangements that existed during the period and the potential effects of those arrangements on shareholders
    
2.  b
    
    The effect of compensation cost arising from share-based payment arrangements on the income statement
    
3.  c
    
    The method of estimating 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 the equity instruments granted (or offered to grant), during the period
    
4.  d
    
    The cash flow effects resulting from share-based payment arrangements.
    

This disclosure is not required for interim reporting. For interim reporting see Topic 270. See Example 9 (paragraphs

[718-10-55-134 through 55-137](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-134)

) for an illustration of this guidance.

Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:

[270-10-65-1](https://asc.understandingaccounting.org/asc/270/10/#270-10-65-1)An entity with one or more [share-based payment arrangements](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-arrangements "An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements.") shall disclose information that enables users of the financial statements to understand all of the following:

1.  a
    
    The nature and terms of such arrangements that existed during the period and the potential effects of those arrangements on shareholders
    
2.  b
    
    The effect of compensation cost arising from share-based payment arrangements on the income statement
    
3.  c
    
    The method of estimating 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 the equity instruments granted (or offered to grant), during the period
    
4.  d
    
    The cash flow effects resulting from share-based payment arrangements.
    

This disclosure is not required for interim reporting. See Example 9 (paragraphs

[718-10-55-134 through 55-137](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-134)

) for an illustration of this guidance.

##### [718-10-50-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:46.036Z to 2026-09-10T01:03:46.036Z

Record version: sha256:fbc6f94cfdc2bfdaa2ec8cc713992c50abe465cda39db5b342ee6c850f0d411b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following list indicates the minimum information needed to achieve the objectives in paragraph [718-10-50-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1) and illustrates how the disclosure requirements might be satisfied. In some circumstances, an entity may need to disclose information beyond the following to achieve the disclosure objectives:

1.  a
    
    A description of the share-based payment arrangement(s), including the general terms of awards under the arrangement(s), such as:
    
    1.  1
        
        The employee's [requisite service period(s)](https://asc.understandingaccounting.org/glossary/r/#requisite-service-period "The period or periods during which an employee is required to provide service in exchange for an award under a share-based payment arrangement. The service that an employee is required to render during that period is referred to as the requisite service. The requisite service period for an award that has only a service condition is presumed to be the vesting period, unless there is clear evidence to the contrary. If an award requires future service for vesting, the entity cannot define a prior period as the requisite service period. Requisite service periods may be explicit, implicit, or derived, depending on the terms of the share-based payment award.") and, if applicable, the nonemployee's vesting period and any other substantive conditions (including those related to vesting)
        
    2.  2
        
        The maximum contractual term of equity (or liability) [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.") or similar instruments
        
    3.  3
        
        The number of shares authorized for awards of equity share options or other equity instruments.
        
2.  b
    
    The method it uses for measuring compensation cost from share-based payment arrangements.
    
3.  c
    
    For the most recent year for which an income statement is provided, both of the following:
    
    1.  1
        
        The number and weighted-average exercise prices (or conversion ratios) for each of the following groups of share options (or [share units](https://asc.understandingaccounting.org/glossary/s/#share-unit "A contract under which the holder has the right to convert each unit into a specified number of shares of the issuing entity.")):
        
        1.  i
            
            Those outstanding at the beginning of the year
            
        2.  ii
            
            Those outstanding at the end of the year
            
        3.  iii
            
            Those exercisable or convertible at the end of the year
            
        4.  iv
            
            Those that during the year were:
            
            1.  01
                
                Granted
                
            2.  02
                
                Exercised or converted
                
            3.  03
                
                Forfeited
                
            4.  04
                
                Expired.
                
    2.  2
        
        The number and weighted-average [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.") fair value (or [calculated value](https://asc.understandingaccounting.org/glossary/c/#calculated-value "A measure of the value of a share option or similar instrument determined by substituting the historical volatility of an appropriate industry sector index for the expected volatility of a nonpublic entity's share price in an option-pricing model.") for a [nonpublic entity](https://asc.understandingaccounting.org/glossary/n/#nonpublic-entity "Any entity other than one that meets any of the following criteria: Has equity securities that trade in a public market either on a stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally Makes a filing with a regulatory agency in preparation for the sale of any class of equity securities in a public market Is controlled by an entity covered by the preceding criteria. An entity that has only debt securities trading in a public market (or that has made a filing with a regulatory agency in preparation to trade only debt securities) is a nonpublic entity.") that uses that method or [intrinsic value](https://asc.understandingaccounting.org/glossary/i/#intrinsic-value "The amount by which the fair value of the underlying stock exceeds the exercise price of an option. For example, an option with an exercise price of $20 on a stock whose current market price is $25 has an intrinsic value of $5. (A nonvested share may be described as an option on that share with an exercise price of zero. Thus, the fair value of a share is the same as the intrinsic value of such an option on that share.)") for awards measured pursuant to paragraph [718-10-30-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-21)) of equity instruments not specified in (c)(1), for all of the following groups of equity instruments:
        
        1.  i
            
            Those nonvested at the beginning of the year
            
        2.  ii
            
            Those nonvested at the end of the year
            
        3.  iii
            
            Those that during the year were:
            
            1.  01
                
                Granted
                
            2.  02
                
                Vested
                
            3.  03
                
                Forfeited.
                
4.  d
    
    For each year for which an income statement is provided, both of the following:
    
    1.  1
        
        The weighted-average grant-date fair value (or calculated value for a nonpublic entity that uses that method or intrinsic value for awards measured at that value pursuant to paragraphs
        
        [718-10-30-21 through 30-22](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-21)
        
        ) of equity options or other equity instruments granted during the year
        
    2.  2
        
        The total intrinsic value of options exercised (or share units converted), share-based liabilities paid, and the total fair value of shares vested during the year.
        
5.  e
    
    For fully vested share options (or share units) and share options expected to [vest](https://asc.understandingaccounting.org/glossary/v/#vest "To earn the rights to. A share-based payment award becomes vested at the date that the grantee's right to receive or retain shares, other instruments, or cash under the award is no longer contingent on satisfaction of either a service condition or a performance condition. Market conditions are not vesting conditions. The stated vesting provisions of an award often establish the employee's requisite service period or the nonemployee's vesting period, and an award that has reached the end of the applicable period is vested. However, as indicated in the definition of requisite service period and equally applicable to a nonemployee's vesting period, the stated vesting period may differ from those periods in certain circumstances. Thus, the more precise terms would be options, shares, or awards for which the requisite good has been delivered or service has been rendered and the end of the employee's requisite service period or the nonemployee's vesting period.") (or unvested share options for which the [employee's](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.") requisite service period or the nonemployee's vesting period has not been rendered but that are expected to vest based on the achievement of a performance condition, if an entity accounts for forfeitures when they occur in accordance with paragraph [718-10-35-1D](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D) or [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3)) at the date of the latest statement of financial position, both of the following:
    
    1.  1
        
        The number, weighted-average exercise price (or conversion ratio), aggregate intrinsic value (except for nonpublic entities), and weighted-average remaining contractual term of options (or share units) outstanding
        
    2.  2
        
        The number, weighted-average exercise price (or conversion ratio), aggregate intrinsic value (except for nonpublic entities), and weighted-average remaining contractual term of options (or share units) currently exercisable (or convertible).
        
6.  f
    
    For each year for which an income statement is presented, both of the following (An entity that uses the intrinsic value method pursuant to paragraphs
    
    [718-10-30-21 through 30-22](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-21)
    
    is not required to disclose the following information for awards accounted for under that method):
    
    1.  1
        
        A description of the method used during the year to estimate the fair value (or calculated value) of awards under share-based payment arrangements
        
    2.  2
        
        A description of the significant assumptions used during the year to estimate the fair value (or calculated value) of share-based compensation awards, including (if applicable):
        
        1.  i
            
            Expected term of share options and similar instruments, including a discussion of the method used to incorporate the contractual term of the instruments and grantees' expected exercise and postvesting termination behavior into the fair value (or calculated value) of the instrument.
            
        2.  ii
            
            Expected [volatility](https://asc.understandingaccounting.org/glossary/v/#volatility "A measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Volatility also may be defined as a probability-weighted measure of the dispersion of returns about the mean. The volatility of a share price is the standard deviation of the continuously compounded rates of return on the share over a specified period. That is the same as the standard deviation of the differences in the natural logarithms of the stock prices plus dividends, if any, over the period. The higher the volatility, the more the returns on the shares can be expected to vary—up or down. Volatility is typically expressed in annualized terms.") of the entity's shares and the method used to estimate it. An entity that uses a method that employs different volatilities during the contractual term shall disclose the range of expected volatilities used and the weighted-average expected volatility. A nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for it to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.
            
        3.  iii
            
            Expected dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.
            
        4.  iv
            
            Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.
            
        5.  v
            
            Discount for postvesting restrictions and the method for estimating it.
            
        6.  vi
            
            Practical expedient for current price input. A nonpublic entity that elects to apply the practical expedient in paragraphs
            
            [718-10-30-20C through 30-20F](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20C)
            
            shall disclose that election.
            
7.  g
    
    An entity that grants equity or liability instruments under multiple share-based payment arrangements shall provide the information specified in paragraph (a) through (f) separately for different types of awards (including nonemployee versus employee) to the extent that the differences in the characteristics of the awards make separate disclosure important to an understanding of the entity's use of share-based compensation. For example, separate disclosure of weighted-average exercise prices (or conversion ratios) at the end of the year for options (or share units) with a fixed exercise price (or conversion ratio) and those with an indexed exercise price (or conversion ratio) could be important. It also could be important to segregate the number of options (or share units) not yet exercisable into those that will become exercisable (or convertible) based solely on fulfilling a [service condition](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.") and those for which 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.") must be met for the options (share units) to become exercisable (convertible). It could be equally important to provide separate disclosures for awards that are classified as equity and those classified as liabilities. In addition, an entity that has multiple share-based payment arrangements shall disclose information separately for different types of awards under those arrangements to the extent that differences in the characteristics of the awards make separate disclosure important to an understanding of the entity's use of share-based compensation.
    
8.  h
    
    For each year for which an income statement is presented, both of the following:
    
    1.  1
        
        Total compensation cost for share-based payment arrangements
        
        1.  i
            
            Recognized in income as well as the total recognized tax benefit related thereto
            
        2.  ii
            
            Capitalized as part of the cost of an asset.
            
    2.  2
        
        A description of significant [modifications](https://asc.understandingaccounting.org/glossary/m/#modification "A change in the terms or conditions of a share-based payment award."), including:
        
        1.  i
            
            The terms of the modifications
            
        2.  ii
            
            The number of grantees affected
            
        3.  iii
            
            The total (or lack of) incremental compensation cost resulting from the modifications.
            
9.  i
    
    As of the latest balance sheet date presented, the total compensation cost related to nonvested awards not yet recognized and the weighted-average period over which it is expected to be recognized
    
10.  j
     
     [Subparagraph superseded by Accounting Standards Update No. 2016-09](https://asc.understandingaccounting.org/updates/asu-2016-09/).
     
11.  k
     
     If not separately disclosed elsewhere, the amount of cash used 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.") equity instruments granted under share-based payment arrangements
     
12.  l
     
     A description of the entity's policy, if any, for [issuing](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.") shares upon share option exercise (or share unit conversion), including the source of those shares (that is, new shares or treasury shares). If as a result of its policy, an entity expects to repurchase shares in the following annual period, the entity shall disclose an estimate of the amount (or a range, if more appropriate) of shares to be repurchased during that period.
     
13.  m
     
     If not separately disclosed elsewhere, the policy for estimating expected forfeitures or recognizing forfeitures as they occur.

##### [718-10-50-2A](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:46.036Z to 2026-09-10T01:03:46.036Z

Record version: sha256:41990208d8f3cb7408d14e50de30173cb48f6fec3200bba53beefbaaf929a65f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Another item of minimum information needed to achieve the objectives in paragraph [718-10-50-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1) is the following:

1.  a
    
    If not separately disclosed elsewhere, the amount of cash received from exercise of share options and similar instruments granted under share-based payment arrangements and the tax benefit from stock options exercised during the annual period

##### [718-10-50-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:46.036Z to 2026-09-10T01:03:46.036Z

Record version: sha256:3df1a32daa672a7c4c0b0a4ecb60165e496b017cacbb68cea234ff43350caa04

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/).

##### [718-10-50-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:46.036Z to 2026-09-10T01:03:46.036Z

Record version: sha256:6d89592203baa08b1d9870c1c2945f1dc5241c9eea58719ef2c1df8e34184d5e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In addition to the information required by this Topic, an entity may disclose supplemental information that it believes would be useful to investors and creditors, such as a range of values calculated on the basis of different assumptions, provided that the supplemental information is reasonable and does not lessen the prominence and credibility of the information required by this Topic. The alternative assumptions shall be described to enable users of the financial statements to understand the basis for the supplemental information.

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:a91479ba6fd7b658f3be78cd765cf7a82e187fb1da2e2bf73412ab522fd23889

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/718/10/#55-implementation-guidance-and-illustrations)

SEC content: no

#### Implementation Guidance

##### [718-10-55-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:0af7f91a3f7a4248aa16ab06a3789ea22ded98a66d0c9bf3e8832b9c90b8c98a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Subtopic and Subtopics 718-20 and 718-30 are interrelated and the required guidance may be located in either this Subtopic or one of the other Subtopics. In general, material that relates to both equity and liability instruments is included in this Subtopic, while material more specifically related to either equity or liability instruments is included in their respective Subtopics.

##### [718-10-55-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:6c3dce8754a72624896f4be4f41a1f9d034d53748bfb12f3f7e9c738c92544c8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Implementation guidance is provided on the following matters:

1.  a
    
    [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.") measurement objectives and application
    
2.  b
    
    Fair-value-based instruments in a share-based transaction
    
3.  c
    
    Valuation techniques
    
4.  d
    
    Selecting assumptions for use in an option pricing model
    
    1.  1
        
        Consistent use of valuation techniques and methods for selecting assumptions
        
    2.  2
        
        Selecting or estimating the risk-free rate for the expected term
        
    3.  3
        
        Selecting or estimating the expected term
        
    4.  4
        
        Selecting or estimating the expected [volatility](https://asc.understandingaccounting.org/glossary/v/#volatility "A measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Volatility also may be defined as a probability-weighted measure of the dispersion of returns about the mean. The volatility of a share price is the standard deviation of the continuously compounded rates of return on the share over a specified period. That is the same as the standard deviation of the differences in the natural logarithms of the stock prices plus dividends, if any, over the period. The higher the volatility, the more the returns on the shares can be expected to vary—up or down. Volatility is typically expressed in annualized terms.")
        
    5.  5
        
        Selecting or estimating expected dividends
        
    6.  6
        
        Dividend protected awards
        
    7.  7
        
        Selecting or considering credit risk
        
    8.  8
        
        Contingency features that affect the option pricing model
        
    9.  9
        
        Consider dilution.
        
5.  dd
    
    Nonpublic entity—practical expedient for expected term
    
6.  e
    
    [Calculated value](https://asc.understandingaccounting.org/glossary/c/#calculated-value "A measure of the value of a share option or similar instrument determined by substituting the historical volatility of an appropriate industry sector index for the expected volatility of a nonpublic entity's share price in an option-pricing model.") for certain nonpublic entities
    
7.  f
    
    [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.")
    
    1.  1
        
        Market, performance, and service conditions that affect vesting and exercisability
        
    2.  2
        
        Market, performance, and service conditions that affect factors other than vesting and exercisability
        
    3.  3
        
        Estimating the employee's [requisite service period](https://asc.understandingaccounting.org/glossary/r/#requisite-service-period "The period or periods during which an employee is required to provide service in exchange for an award under a share-based payment arrangement. The service that an employee is required to render during that period is referred to as the requisite service. The requisite service period for an award that has only a service condition is presumed to be the vesting period, unless there is clear evidence to the contrary. If an award requires future service for vesting, the entity cannot define a prior period as the requisite service period. Requisite service periods may be explicit, implicit, or derived, depending on the terms of the share-based payment award.")
        
    4.  4
        
        Explicit, implicit, and derived employee's requisite service periods.
        
8.  g
    
    Determination of [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.")
    
9.  h
    
    [Service inception date](https://asc.understandingaccounting.org/glossary/s/#service-inception-date "The date at which the employee's requisite service period or the nonemployee's vesting period begins. The service inception date usually is the grant date, but the service inception date may differ from the grant date (see Example 6 [see paragraph 718-10-55-107] for an illustration of the application of this term to an employee award).") and grant date
    
10.  i
     
     [Equity restructuring](https://asc.understandingaccounting.org/glossary/e/#equity-restructuring "A nonreciprocal transaction between an entity and its shareholders that causes the per-share fair value of the shares underlying an option or similar award to change, such as a stock dividend, stock split, spinoff, rights offering, or recapitalization through a large, nonrecurring cash dividend.")
     
11.  j
     
     Classification of certain awards with repurchase features
     
12.  k
     
     Employee of a physician practice.

##### [718-10-55-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:1183421b83ac5ecfa00bdafb0a11d3fe13495a0780b4d04ecf6fca5c6cb96e65

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In this Section fair value also applies to nonpublic entities that use the calculated value method pursuant to paragraph [718-10-30-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20).

##### [718-10-55-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4498651be3989c60966f014a0328599977e06743f044423846f5b4e317a1b4e1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The measurement objective for equity instruments granted in [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.") is to estimate the grant-date fair value of the equity instruments that the entity is obligated to issue when grantees have delivered the good or have rendered the service and satisfied any other conditions necessary to earn the right to benefit from the instruments. That estimate is based on the share price and other pertinent factors (including those enumerated in paragraphs

[718-10-55-21 through 55-22](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21)

, if applicable) at the grant date and is not remeasured in subsequent periods under the fair-value-based method.

##### [718-10-55-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:d4ccb50c13428ff2edf3dccf81d8d848d7277e8d57c14545ccac50b61ba4c70e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A [restriction](https://asc.understandingaccounting.org/glossary/r/#restriction "A contractual or governmental provision that prohibits sale (or substantive sale by using derivatives or other means to effectively terminate the risk of future changes in the share price) of an equity instrument for a specified period of time.") that continues in effect after the entity has issued instruments to grantees, such as the inability to transfer vested equity share options to third parties or the inability to sell vested shares for a period of time, is considered in estimating the fair value of the instruments at the grant date. For instance, if shares are traded in an active market, postvesting restrictions may have little, if any, effect on the amount at which the shares being valued would be exchanged. For share options and similar instruments, the effect of nontransferability (and nonhedgeability, which has a similar effect) is taken into account by reflecting the effects of grantees' expected exercise and postvesting termination behavior in estimating fair value (referred to as an option's expected term).

##### [718-10-55-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-6)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4f0a8693e3dee14c8ee3e63bbc56ff7910d44dd2b945226b47374b5bf1f7f592

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In contrast, a restriction that stems from the forfeitability of instruments to which grantees have not yet earned the right, such as the inability either to exercise a nonvested equity [share option](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.") or to sell [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)."), is not reflected in the fair value of the instruments at the grant date. Instead, those restrictions are taken into account by recognizing compensation cost only for awards for which grantees deliver the goods or render the service.

##### [718-10-55-7](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-7)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:ee67827ac87a888311279882e549ed00c75693173222711770739561431ff213

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Note that performance and service conditions are vesting conditions for purposes of this Topic. Market conditions are not vesting conditions for purposes of this Topic but market conditions may affect exercisability of an [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."). Market conditions are included in the estimate of the grant-date fair value of awards (see paragraphs

[718-10-55-64 through 55-66](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-64)

).

##### [718-10-55-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-8)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:49c474fec62551816674bcdc147dc49f0d140252ab8873733610892df39b7fc0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Reload features](https://asc.understandingaccounting.org/glossary/r/#reload-feature-and-reload-option "A reload feature provides for automatic grants of additional options whenever a grantee exercises previously granted options using the entity's shares, rather than cash, to satisfy the exercise price. At the time of exercise using shares, the grantee is automatically granted a new option, called a reload option, for the shares used to exercise the previous option.") and contingent features that require a grantee to transfer equity shares earned, or realized gains from the sale of equity instruments earned, to the issuing entity for consideration that is less than fair value on the date of transfer (including no consideration), such as a clawback feature, shall not be reflected in the grant-date fair value of an equity award. Those features are accounted for if and when a reload grant or contingent event occurs. A clawback feature can take various forms but often functions as a noncompete mechanism. For example, an employee that terminates the employment relationship and begins to work for a competitor is required to transfer to the issuing entity (former employer) equity shares granted and earned in a share-based payment transaction.

##### [718-10-55-9](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-9)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:8e6dc407a99de8eacc51323646d89ccefd4b4dc23b9cce4de3daad44c8b86a47

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The fair value measurement objective for liabilities incurred in a share-based payment transaction is the same as for equity instruments. However, awards classified as liabilities are subsequently remeasured to their fair values (or a portion thereof until the promised good has been delivered or the service has been rendered) at the end of each reporting period until the liability is [settled](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.").

##### [718-10-55-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-10)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:f86addc6b6dbaa1e1e5ca64388ef16ece639f32e159cf73716e83b8f2ebf9982

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The definition of fair value refers explicitly only to assets and liabilities, but the concept of value in a current exchange embodied in it applies equally to the equity instruments subject to this Topic. Observable market prices of identical or similar equity or liability instruments in active markets are the best evidence of fair value and, if available, shall be used as the basis for the measurement of equity and liability instruments awarded in a share-based payment transaction. Determining whether an equity or liability instrument is similar is a matter of judgment, based on an analysis of the terms of the instrument and other relevant facts and circumstances. For example, awards to grantees of a [public entity](https://asc.understandingaccounting.org/glossary/p/#public-entity "An entity that meets any of the following criteria: Has equity securities that trade in a public market, either on a stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally Makes a filing with a regulatory agency in preparation for the sale of any class of equity securities in a public market Is controlled by an entity covered by the preceding criteria. That is, a subsidiary of a public entity is itself a public entity. An entity that has only debt securities trading in a public market (or that has made a filing with a regulatory agency in preparation to trade only debt securities) is not a public entity.") of shares of its common stock, subject only to a service or [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.") for vesting (nonvested shares), shall be measured based on the market price of otherwise identical (that is, identical except for the vesting condition) common stock at the grant date.

##### [718-10-55-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-11)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:a1f1133c428a2122b33ad5892b3fdb801bd088ebcd06e25fd3d5b4b62fff0c09

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If observable market prices of identical or similar equity or liability instruments of the entity are not available, the fair value of equity and liability instruments awarded to grantees shall be estimated by using a valuation technique that meets all of the following criteria:

1.  a
    
    It is applied in a manner consistent with the fair value measurement objective and the other requirements of this Topic.
    
2.  b
    
    It is based on established principles of financial economic theory and generally applied in that field (see paragraph [718-10-55-16](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-16)). Established principles of financial economic theory represent fundamental propositions that form the basis of modern corporate finance (for example, the [time value](https://asc.understandingaccounting.org/glossary/t/#time-value "The portion of the fair value of an option that exceeds its intrinsic value. For example, a call option with an exercise price of $20 on a stock whose current market price is $25 has intrinsic value of $5. If the fair value of that option is $7, the time value of the option is $2 ($7 - $5).") of money and risk-neutral valuation).
    
3.  c
    
    It reflects all substantive characteristics of the instrument (except for those explicitly excluded by this Topic, such as vesting conditions and reload features).
    

That is, the fair values of equity and liability instruments granted in a share-based payment transaction shall be estimated by applying a valuation technique that would be used in determining an amount at which instruments with the same characteristics (except for those explicitly excluded by this Topic) would be exchanged.

##### [718-10-55-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-12)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:a0eeb290ddf905cb98cf7974163a6a35e868719fb77c26fffee51d9c7e5e28fa

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An estimate of the amount at which instruments similar to share options and other instruments granted in share-based payment transactions would be exchanged would factor in expectations of the probability that the good would be delivered or the service would be rendered and the instruments would [vest](https://asc.understandingaccounting.org/glossary/v/#vest "To earn the rights to. A share-based payment award becomes vested at the date that the grantee's right to receive or retain shares, other instruments, or cash under the award is no longer contingent on satisfaction of either a service condition or a performance condition. Market conditions are not vesting conditions. The stated vesting provisions of an award often establish the employee's requisite service period or the nonemployee's vesting period, and an award that has reached the end of the applicable period is vested. However, as indicated in the definition of requisite service period and equally applicable to a nonemployee's vesting period, the stated vesting period may differ from those periods in certain circumstances. Thus, the more precise terms would be options, shares, or awards for which the requisite good has been delivered or service has been rendered and the end of the employee's requisite service period or the nonemployee's vesting period.") (that is, that the performance or service conditions would be satisfied). However, as noted in paragraph [718-10-55-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-4), the measurement objective in this Topic is to estimate the fair value at the grant date of the equity instruments that the entity is obligated to issue when grantees have delivered the good or rendered the service and satisfied any other conditions necessary to earn the right to benefit from the instruments. Therefore, the estimated fair value of the instruments at grant date does not take into account the effect on fair value of vesting conditions and other restrictions that apply only during the employee's requisite service period or the nonemployee's vesting period. Under the fair-value-based method required by this Topic, the effect of vesting conditions and other restrictions that apply only during the employee's requisite service period or the nonemployee's vesting period is reflected by recognizing compensation cost only for instruments for which the good is delivered or the service is rendered.

##### [718-10-55-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-13)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4b2e8bda3153d82ad7e9296151ef2c204eab495b9fc5581dc41995e9efb58a4a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In applying a valuation technique, the assumptions used shall be consistent with the fair value measurement objective. That is, assumptions shall reflect information that is (or would be) available to form the basis for an amount at which the instruments being valued would be exchanged. In estimating fair value, the assumptions used shall not represent the biases of a particular party. Some of those assumptions will be based on or determined from external data. Other assumptions, such as the employees' expected exercise behavior, may be derived from the entity's own historical experience with [share-based payment arrangements](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-arrangements "An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements.").

##### [718-10-55-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-14)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:e664e60293fc610afececc8fff5c7e7e29fcc8279778a4d3b5333d6c874fa3e7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The fair value of any equity or liability instrument depends on its substantive characteristics. Paragraphs

[718-10-55-21 through 55-22](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21)

list the minimum set of substantive characteristics of instruments with option (or option-like) features that shall be considered in estimating those instruments' fair value. However, a share-based payment award could contain other characteristics, such as a [market condition](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."), that should be included in a fair value estimate. Judgment is required to identify an award's substantive characteristics and, as described in paragraphs

[718-10-55-15 through 55-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-15)

, to select a valuation technique that incorporates those characteristics.

##### [718-10-55-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-15)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:95bf3d42138240f34d24d20cd7d554b838fc8b995e4b8f65e6a18846b7dfcb76

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Valuation techniques used for share options and similar instruments granted in share-based payment transactions estimate the fair value of those instruments at a single point in time (for example, at the grant date). The assumptions used in a fair value measurement are based on expectations at the time the measurement is made, and those expectations reflect the information that is available at the time of measurement. The fair value of those instruments will change over time as factors used in estimating their fair value subsequently change, for instance, as share prices fluctuate, risk-free interest rates change, or dividend streams are modified. Changes in the fair value of those instruments are a normal economic process to which any valuable resource is subject and do not indicate that the expectations on which previous fair value measurements were based were incorrect. The fair value of those instruments at a single point in time is not a forecast of what the estimated fair value of those instruments may be in the future.

##### [718-10-55-16](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-16)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:5900afc02ab520e7dcd6df51557faf308231142a3d31062dc6009b08e7c0f1e0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A [lattice model](https://asc.understandingaccounting.org/glossary/l/#lattice-model "A model that produces an estimated fair value based on the assumed changes in prices of a financial instrument over successive periods of time. The binomial model is an example of a lattice model. In each time period, the model assumes that at least two price movements are possible. The lattice represents the evolution of the value of either a financial instrument or a market variable for the purpose of valuing a financial instrument. In this context, a lattice model is based on risk-neutral valuation and a contingent claims framework. See Closed-Form Model for an explanation of the terms risk-neutral valuation and contingent claims framework.") (for example, a binomial model) and a [closed-form model](https://asc.understandingaccounting.org/glossary/c/#closed-form-model "A valuation model that uses an equation to produce an estimated fair value. The Black-Scholes-Merton formula is a closed-form model. In the context of option valuation, both closed-form models and lattice models are based on risk-neutral valuation and a contingent claims framework. The payoff of a contingent claim, and thus its value, depends on the value(s) of one or more other assets. The contingent claims framework is a valuation methodology that explicitly recognizes that dependency and values the contingent claim as a function of the value of the underlying asset(s). One application of that methodology is risk-neutral valuation in which the contingent claim can be replicated by a combination of the underlying asset and a risk-free bond. If that replication is possible, the value of the contingent claim can be determined without estimating the expected returns on the underlying asset. The Black-Scholes-Merton formula is a special case of that replication.") (for example, the Black-Scholes-Merton formula) are among the valuation techniques that meet the criteria required by this Topic for estimating the fair values of share options and similar instruments granted in share-based payment transactions. A Monte Carlo simulation technique is another type of valuation technique that satisfies the requirements in paragraph [718-10-55-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-11). Other valuation techniques not mentioned in this Topic also may satisfy the requirements in that paragraph. Those valuation techniques or models, sometimes referred to as option-pricing models, are based on established principles of financial economic theory. Those techniques are used by valuation professionals, dealers of derivative instruments, and others to estimate the fair values of options and similar instruments related to equity securities, currencies, interest rates, and commodities. Those techniques are used to establish trade prices for derivative instruments and to establish values in adjudications. As discussed in paragraphs

[718-10-55-21 through 55-50](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21)

, both lattice models and closed-form models can be adjusted to account for the substantive characteristics of share options and similar instruments granted granted in share-based payment transactions.

##### [718-10-55-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-17)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:ccb715b3343beb9ee7dde83985b8ffdf1a9258da772e7a21d2e7ff356a428cad

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Topic does not specify a preference for a particular valuation technique or model in estimating the fair values of share options and similar instruments granted in share-based payment transactions. Rather, this Topic requires the use of a valuation technique or model that meets the measurement objective in paragraph [718-10-30-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6) and the requirements in paragraph [718-10-55-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-11). The selection of an appropriate valuation technique or model will depend on the substantive characteristics of the instrument being valued. Because an entity may grant different types of instruments, each with its own unique set of substantive characteristics, an entity may use a different valuation technique for each different type of instrument. The appropriate valuation technique or model selected to estimate the fair value of an instrument with a market condition must take into account the effect of that market condition. The designs of some techniques and models better reflect the substantive characteristics of a particular share option or similar instrument granted in share-based payment transactions. Paragraphs

[718-10-55-18 through 55-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-18)

discuss certain factors that an entity should consider in selecting a valuation technique or model for its share options or similar instruments.

##### [718-10-55-18](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-18)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:24651b1100bf2f6a4ca3817a3f407b040ee3e6228a66ed1ca98c791b907aa20c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The Black-Scholes-Merton formula assumes that option exercises occur at the end of an option's contractual term, and that expected volatility, expected dividends, and risk-free interest rates are constant over the option's term. If used to estimate the fair value of instruments in the scope of this Topic, the Black-Scholes-Merton formula must be adjusted to take account of certain characteristics of share options and similar instruments that are not consistent with the model's assumptions (for example, exercising before the end of the option's contractual term when estimating expected term). Because of the nature of the formula, those adjustments take the form of weighted-average assumptions about those characteristics. In contrast, a lattice model can be designed to accommodate dynamic assumptions of expected volatility and dividends over the option's contractual term, and estimates of expected option exercise patterns during the option's contractual term, including the effect of [blackout periods](https://asc.understandingaccounting.org/glossary/b/#blackout-period "A period of time during which exercise of an equity share option is contractually or legally prohibited."). Therefore, the design of a lattice model more fully reflects the substantive characteristics of particular share options or similar instruments. Nevertheless, both a lattice model and the Black-Scholes-Merton formula, as well as other valuation techniques that meet the requirements in paragraph [718-10-55-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-11), can provide a fair value estimate that is consistent with the measurement objective and fair-value-based method of this Topic.

##### [718-10-55-19](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-19)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:31d1e275d396351c67a35a595c80e60421b3ac69cbb5f058576b17a3be5ca59d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Regardless of the valuation technique or model selected, an entity shall develop reasonable and supportable estimates for each assumption used in the model, including the share option or similar instrument's expected term, taking into account both the contractual term of the option and the effects of grantees' expected exercise and postvesting termination behavior. The term _supportable_ is used in its general sense: capable of being maintained, confirmed, or made good; defensible. An application is supportable if it is based on reasonable arguments that consider the substantive characteristics of the instruments being valued and other relevant facts and circumstances.

##### [718-10-55-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-20)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:f991b17624a67ec247d8f6002e30da54cf4a9a866bdd8adc07780d1b39ae0991

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall change the valuation technique it uses to estimate fair value if it concludes that a different technique is likely to result in a better estimate of fair value (see paragraph [718-10-55-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-27)). For example, an entity that uses a closed-form model might conclude, when information becomes available, that a lattice model or another valuation technique would provide a fair value estimate that better achieves the fair value measurement objective and, therefore, change the valuation technique it uses.

##### [718-10-55-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:1bf9bd0f5a007abfb31b866ae9c5c8a31f79230b37cf867d44961f60d72438dd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If an observable market price is not available for a share option or similar instrument with the same or similar terms and conditions, an entity shall estimate the fair value of that instrument using a valuation technique or model that meets the requirements in paragraph [718-10-55-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-11) and takes into account, at a minimum, all of the following:

1.  a
    
    The exercise price of the option.
    
2.  b
    
    The expected term of the option. This should take into account both the contractual term of the option and the effects of grantees' expected exercise and postvesting termination behavior. In a closed-form model, the expected term is an assumption used in (or input to) the model, while in a lattice model, the expected term is an output of the model (see paragraphs
    
    [718-10-55-29 through 55-34](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-29)
    
    , which provide further explanation of the expected term in the context of a lattice model).
    
3.  c
    
    The current price of the underlying share.
    
4.  d
    
    The expected volatility of the price of the underlying share for the expected term of the option.
    
5.  e
    
    The expected dividends on the underlying share for the expected term of the option (except as provided in paragraphs
    
    [718-10-55-44 through 55-45](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-44)
    
    ).
    
6.  f
    
    The risk-free interest rate(s) for the expected term of the option.

##### [718-10-55-22](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-22)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:5c650246eb82f1c6e4440dc4ff704c5cf1cad2f5158fcece2844d1a024b21881

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The term _expected_ in (b); (d); (e); and (f) in paragraph [718-10-55-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21) relates to expectations at the [measurement date](https://asc.understandingaccounting.org/glossary/m/#measurement-date "The date at which the equity share price and other pertinent factors, such as expected volatility, that enter into measurement of the total recognized amount of compensation cost for an award of share-based payment are fixed.") about the future evolution of the factor that is used as an assumption in a valuation model. The term is not necessarily used in the same sense as in the term _expected future cash flows_ that appears elsewhere in the Codification. The phrase _expected term of the option_ in (d); (e); and (f) in paragraph [718-10-55-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21) applies to both closed-form models and lattice models (as well as all other valuation techniques). However, if an entity uses a lattice model (or other similar valuation technique, for instance, a Monte Carlo simulation technique) that has been modified to take into account an option's contractual term and grantees' expected exercise and postvesting termination behavior, then (d); (e); and (f) in paragraph [718-10-55-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21) apply to the contractual term of the option.

##### [718-10-55-23](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-23)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:866e93bef7b964dab70f4a9f674e6503de80c6b658c70322028ebaf5adf0557d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


There is likely to be a range of reasonable estimates for expected volatility, dividends, and term of the option. If no amount within the range is more or less likely than any other amount, an average of the amounts in the range (the expected value) shall be used. In a lattice model, the assumptions used are to be determined for a particular node (or multiple nodes during a particular time period) of the lattice and not over multiple periods, unless such application is supportable.

##### [718-10-55-24](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-24)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:2082f7c807c81c8c941263902582efc3339bfb9ccd25da5071444937e6919cb4

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Historical experience is generally the starting point for developing expectations about the future. Expectations based on historical experience shall be modified to reflect ways in which currently available information indicates that the future is reasonably expected to differ from the past. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances. For example, an entity with two distinctly different lines of business of approximately equal size may dispose of the one that was significantly less volatile and generated more cash than the other. In that situation, the entity might place relatively little weight on volatility, dividends, and perhaps grantees' exercise and postvesting termination behavior from the predisposition (or disposition) period in developing reasonable expectations about the future. In contrast, an entity that has not undergone such a restructuring might place heavier weight on historical experience. That entity might conclude, based on its analysis of information available at the time of measurement, that its historical experience provides a reasonable estimate of expected volatility, dividends, and grantees' exercise and postvesting termination behavior. This guidance is not intended to suggest either that historical volatility is the only indicator of expected volatility or that an entity must identify a specific event in order to place less weight on historical experience. Expected volatility is an expectation of volatility over the expected term of an option or similar instrument; that expectation shall consider all relevant factors in paragraph [718-10-55-37](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37), including possible mean reversion. Paragraphs

[718-10-55-35 through 55-41](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-35)

provide further guidance on estimating expected volatility.

##### [718-10-55-25](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-25)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:9ab23c55cd6a49788927d7c3c7f53ac8905c3c601dbd7f18a3658b13456cd7c6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In certain circumstances, historical information may not be available. For example, an entity whose common stock has only recently become publicly traded may have little, if any, historical information on the volatility of its own shares. That entity might base expectations about future volatility on the average volatilities of similar entities for an appropriate period following their going public. A [nonpublic entity](https://asc.understandingaccounting.org/glossary/n/#nonpublic-entity "Any entity other than one that meets any of the following criteria: Has equity securities that trade in a public market either on a stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally Makes a filing with a regulatory agency in preparation for the sale of any class of equity securities in a public market Is controlled by an entity covered by the preceding criteria. An entity that has only debt securities trading in a public market (or that has made a filing with a regulatory agency in preparation to trade only debt securities) is a nonpublic entity.") will need to exercise judgment in selecting a method to estimate expected volatility and might do so by basing its expected volatility on the average volatilities of otherwise similar public entities. For purposes of identifying otherwise similar entities, an entity would likely consider characteristics such as industry, stage of life cycle, size, and financial leverage. Because of the effects of diversification that are present in an industry sector index, the volatility of an index should not be substituted for the average of volatilities of otherwise similar entities in a fair value measurement.

##### [718-10-55-26](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-26)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:51c249a0ee29b1488eb16d07ed918fddc296888277ebf72dced46506a854d1c1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This guidance is organized as follows:

1.  a
    
    Selecting consistent assumptions
    
2.  b
    
    Selecting or estimating the risk-free rate for the expected term
    
3.  c
    
    Selecting or estimating the expected term
    
4.  d
    
    Selecting or estimating the expected volatility
    
5.  e
    
    Selecting or estimating expected dividends
    
6.  f
    
    Dividend protected awards
    
7.  g
    
    Selecting or considering credit risk
    
8.  h
    
    Contingency features that affect the option pricing model
    
9.  i
    
    Consider dilution.

##### [718-10-55-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-27)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:d041b6eac71a5e04620ecbf985bdc725e70dbddf23f06097c4f671ef5310a9d7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Assumptions used to estimate the fair value of equity and liability instruments granted in share-based payment transactions shall be determined in a consistent manner from period to period. For example, an entity might use the closing share price or the share price at another specified time as the current share price on the grant date in estimating fair value, but whichever method is selected, it shall be used consistently. The valuation technique an entity selects to estimate fair value for a particular type of instrument also shall be used consistently and shall not be changed unless a different valuation technique is expected to produce a better estimate of fair value. A change in either the valuation technique or the method of determining appropriate assumptions used in a valuation technique is a change in accounting estimate for purposes of applying Topic 250, and shall be applied prospectively to new awards.

##### [718-10-55-28](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-28)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:d280146b66305832c13c3c8d554c3aa79db9a29d1b508fc626d54c89ab3d2e58

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Option-pricing models call for the risk-free interest rate as an assumption to take into account, among other things, the time value of money. A U.S. entity issuing an option on its own shares must use as the risk-free interest rates the implied yields currently available from the U.S. Treasury zero-coupon yield curve over the contractual term of the option if the entity is using a lattice model incorporating the option's contractual term. If the entity is using a closed-form model, the risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model. For entities based in jurisdictions outside the United States, the risk-free interest rate is the implied yield currently available on zero-coupon government issues denominated in the currency of the market in which the share (or underlying share), which is the basis for the instrument awarded, primarily trades. It may be necessary to use an appropriate substitute if no such government issues exist or if circumstances indicate that the implied yield on zero-coupon government issues is not representative of a risk-free interest rate.

##### [718-10-55-29](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-29)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:75bf8e67d3ed4af8ab5cac1c08559d7bf6fca50861d9bc8890bbd70f6a926801

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The fair value of a traded (or transferable) share option is based on its contractual term because rarely is it economically advantageous to exercise, rather than sell, a transferable share option before the end of its contractual term. Employee share options generally differ from transferable share options in that employees cannot sell (or hedge) their share options—they can only exercise them; because of this, employees generally exercise their options before the end of the options' contractual term. Thus, the inability to sell or hedge an employee share option effectively reduces the option's value because exercise prior to the option's expiration terminates its remaining life and thus its remaining time value. In addition, some employee share options contain prohibitions on exercise during blackout periods. To reflect the effect of those restrictions (which may lead to exercise before the end of the option's contractual term) on employee options relative to transferable options, this Topic requires that the fair value of an employee share option or similar instrument be based on its expected term, rather than its contractual term (see paragraphs [718-10-55-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-5) and [718-10-55-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21)).

##### [718-10-55-29A](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-29A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:e8f1d11f5b237ad487e98186fe88e324d04a1bacc26b36a634279682290c27fb

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph [718-10-30-10A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-10A) states that, on an award-by-award basis, an entity may elect to use the contractual term as the expected term when estimating the fair value of a nonemployee award to satisfy the measurement objective in paragraph [718-10-30-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6). Otherwise, an entity shall apply the guidance in this Topic in estimating the expected term of a nonemployee award, which may result in a term less than the contractual term of the award. If an entity does not elect to use the contractual term as the expected term, similar considerations discussed in paragraph [718-10-55-29](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-29), such as the inability to sell or hedge a nonemployee award, apply when estimating its expected term.

##### [718-10-55-30](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-30)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:0a85da370e51d56aa21fdc0692edd507b244270887014fbab244b83b49324383

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The expected term of an employee share option or similar instrument is the period of time for which the instrument is expected to be outstanding (that is, the period of time from the service inception date to the date of expected exercise or other expected settlement). The expected term is an assumption in a closed-form model. However, if an entity uses a lattice model that has been modified to take into account an option's contractual term and employees' expected exercise and post-vesting employment termination behavior, the expected term is estimated based on the resulting output of the lattice. For example, an entity's experience might indicate that option holders tend to exercise their options when the share price reaches 200 percent of the exercise price. If so, that entity might use a lattice model that assumes exercise of the option at each node along each share price path in a lattice at which the early exercise expectation is met, provided that the option is vested and exercisable at that point. Moreover, such a model would assume exercise at the end of the contractual term on price paths along which the exercise expectation is not met but the options are in-the-money at the end of the contractual term. The terms _at-the-money_, _in-the-money_, and _out-of-the-money_ are used to describe share options whose exercise price is equal to, less than, or greater than the market price of the underlying share, respectively. The valuation approach described recognizes that employees' exercise behavior is correlated with the price of the underlying share. Employees' expected post-vesting employment termination behavior also would be factored in. Expected term, which is a required disclosure (see paragraphs [718-10-50-2 through 50-2A](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2)), then could be estimated based on the output of the resulting lattice. An example of an acceptable method for purposes of financial statement disclosures of estimating the expected term based on the results of a lattice model is to use the lattice model's estimated fair value of a share option as an input to a closed-form model, and then to solve the closed-form model for the expected term. Other methods also are available to estimate expected term.

##### [718-10-55-31](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-31)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:33abbd0822c58832c114a15fff591565c82d27f61b6326bb1984204ec5b1d74c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Other factors that may affect expectations about employees' exercise and post-vesting employment termination behavior include the following:

1.  a
    
    The vesting period of the award. An option's expected term must at least include the vesting period. Under some share option arrangements, an option holder may exercise an option prior to vesting (usually to obtain a specific tax treatment); however, such arrangements generally require that any shares received upon exercise be returned to the entity (with or without a return of the exercise price to the holder) if the vesting conditions are not satisfied. Such an exercise is not substantive for accounting purposes.
    
2.  b
    
    Employees' historical exercise and post-vesting employment termination behavior for similar grants.
    
3.  c
    
    Expected volatility of the price of the underlying share. An entity also might consider whether the evolution of the share price affects an employee's exercise behavior (for example, an employee may be more likely to exercise a share option shortly after it becomes in-the-money if the option had been out-of-the-money for a long period of time).
    
4.  d
    
    Blackout periods and other coexisting arrangements such as agreements that allow for exercise to automatically occur during blackout periods if certain conditions are satisfied.
    
5.  e
    
    Employees' ages, lengths of service, and home jurisdictions (that is, domestic or foreign).

##### [718-10-55-32](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-32)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:5e328e0534c1a40a64a90bfb276c1213a898952ea8b7457459d5d91e617fd81b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If sufficient information about employees' expected exercise and post-vesting employment termination behavior is available, a method like the one described in paragraph [718-10-55-30](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-30) might be used because that method reflects more information about the instrument being valued (see paragraph [718-10-55-18](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-18)). However, expected term might be estimated in some other manner, taking into account whatever relevant and supportable information is available, including industry averages and other pertinent evidence such as published academic research.

##### [718-10-55-33](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-33)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:d3025ffa1a43b64dd011b8330513ae50447976eca8a3e59dba6cd4d53cbcb8c5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Option value increases at a decreasing rate as the term lengthens (for most, if not all, options). For example, a two-year option is worth less than twice as much as a one-year option, other things equal. Accordingly, estimating the fair value of an option based on a single expected term that effectively averages the differing exercise and postvesting employment termination behaviors of identifiable groups of employees will potentially misstate the value of the entire award.

##### [718-10-55-34](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-34)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:285933670ddfdadbeca16655dc7c0bca2abe20e0219daf98732f06374bbda441

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Aggregating individual awards into relatively homogeneous groups with respect to exercise and postvesting employment termination behaviors and estimating the fair value of the options granted to each group separately reduces such potential misstatement. An entity shall aggregate individual awards into relatively homogeneous groups with respect to exercise and postvesting employment termination behaviors regardless of the valuation technique or model used to estimate the fair value. For example, the historical experience of an employer that grants options broadly to all levels of employees might indicate that hourly employees tend to exercise for a smaller percentage gain than do salaried employees.

##### [718-10-55-34A](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-34A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:6bb9fe8d70f18bef65234e07d51506120f36808838d841c24bcc35b21fc0ad5c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A nonpublic entity may make an accounting policy election to apply a practical expedient to estimate the expected term for certain awards that do not include a [market condition](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.") (see paragraphs

[718-10-30-20A through 30-20B](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A)

). Paragraph [718-10-55-50A](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-50A) provides implementation guidance on the practical expedient.

##### [718-10-55-35](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-35)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4ce03e7f2993c8bc4f444fe6ab154789ca5221187505d35aaba058090167e7d6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As with other aspects of estimating fair value, the objective is to determine the assumption about expected [volatility](https://asc.understandingaccounting.org/glossary/v/#volatility "A measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Volatility also may be defined as a probability-weighted measure of the dispersion of returns about the mean. The volatility of a share price is the standard deviation of the continuously compounded rates of return on the share over a specified period. That is the same as the standard deviation of the differences in the natural logarithms of the stock prices plus dividends, if any, over the period. The higher the volatility, the more the returns on the shares can be expected to vary—up or down. Volatility is typically expressed in annualized terms.") that marketplace participants would be likely to use in determining an exchange price for an option.

##### [718-10-55-36](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-36)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:29102c0c5f3a681b53269089415546a9c29067900067e3fbdb689cdcd52a90a9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Volatility is a measure of the amount by which a financial variable, such as share price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Option-pricing models require expected volatility as an assumption because an option's value is dependent on potential share returns over the option's term. The higher the volatility, the more the returns on the shares can be expected to vary—up or down. Because an option's value is unaffected by expected negative returns on the shares, other things equal, an option on a share with higher volatility is worth more than an option on a share with lower volatility. This Topic does not specify a method of estimating expected volatility; rather, the following paragraph provides a list of factors that shall be considered in estimating expected volatility. An entity's estimate of expected volatility shall be reasonable and supportable.

##### [718-10-55-37](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:6fca7e8ffce9a076371b2e2bbc40e722da09599109fa97577999661293a14ea7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Factors to consider in estimating expected volatility include the following:

1.  a
    
    Volatility of the share price, including changes in that volatility and possible mean reversion of that volatility. Mean reversion refers to the tendency of a financial variable, such as volatility, to revert to some long-run average level. Statistical models have been developed that take into account the mean-reverting tendency of volatility. In computing historical volatility, for example, an entity might disregard an identifiable period of time in which its share price was extraordinarily volatile because of a failed takeover bid if a similar event is not expected to recur during the expected or contractual term. If an entity's share price was extremely volatile for an identifiable period of time, due to a general market decline, that entity might place less weight on its volatility during that period of time because of possible mean reversion. Volatility over the most recent period is generally commensurate with either of the following:
    
    1.  1
        
        The contractual term of the option if a lattice model is being used to estimate fair value
        
    2.  2
        
        The expected term of the option if a closed-form model is being used. An entity might evaluate changes in volatility and mean reversion over that period by dividing the contractual or expected term into regular intervals and evaluating evolution of volatility through those intervals.
        
2.  b
    
    The implied volatility of the share price determined from the market prices of traded options or other traded financial instruments such as outstanding convertible debt, if any.
    
3.  c
    
    For a public entity, the length of time its shares have been publicly traded. If that period is shorter than the expected or contractual term of the option, the term structure of volatility for the longest period for which trading activity is available shall be more relevant. A newly public entity also might consider the expected volatility of similar entities. In evaluating similarity, an entity would likely consider factors such as industry, stage of life cycle, size, and financial leverage. A nonpublic entity might base its expected volatility on the expected volatilities of entities that are similar except for having publicly traded securities.
    
4.  d
    
    Appropriate and regular intervals for price observations. If an entity considers historical volatility in estimating expected volatility, it shall use intervals that are appropriate based on the facts and circumstances and that provide the basis for a reasonable fair value estimate. For example, a publicly traded entity would likely use daily price observations, while a nonpublic entity with shares that occasionally change hands at negotiated prices might use monthly price observations.
    
5.  e
    
    Corporate and capital structure. An entity's corporate structure may affect expected volatility (see paragraph [718-10-55-24](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-24)). An entity's capital structure also may affect expected volatility; for example, highly leveraged entities tend to have higher volatilities.

##### [718-10-55-38](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-38)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:fd4d8600764f566a253a85ebc1280f0ae3f327497e5eae82a586380c39c75f8a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Although use of unadjusted historical volatility may be appropriate for some entities (or even for most entities in some time periods), a marketplace participant would not use historical volatility without considering the extent to which the future is likely to differ from the past.

##### [718-10-55-39](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-39)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:cd73a2c8ee2fb3a24d92f81b137e04b358391d07c3ac57712109744bf6b0162b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A closed-form model, such as the Black-Scholes-Merton formula, cannot incorporate a range of expected volatilities over the option's expected term (see paragraph [718-10-55-18](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-18)). Lattice models can incorporate a term structure of expected volatility; that is, a range of expected volatilities can be incorporated into the lattice over an option's contractual term. Determining how to incorporate a range of expected volatilities into a lattice model to provide a reasonable fair value estimate is a matter of judgment and shall be based on a careful consideration of the factors listed in paragraph [718-10-55-37](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37) as well as other relevant factors that are consistent with the fair value measurement objective of this Topic.

##### [718-10-55-40](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-40)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:1af1e1064eab153e10d901aeeaace3d8c900bbcaa19ba61ca1f52576aedc346c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall establish a process for estimating expected volatility and apply that process consistently from period to period (see paragraph [718-10-55-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-27)). That process:

1.  a
    
    Shall comprehend an identification of information available to the entity and applicable factors such as those described in paragraph [718-10-55-37](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37)
    
2.  b
    
    Shall include a procedure for evaluating and weighting that information.

##### [718-10-55-41](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-41)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:9e85c438b44af5a164e91c08135d21ed49a4ddaa0263d3d621fac826b2a5590a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The process developed by an entity shall be determined by the information available to it and its assessment of how that information would be used to estimate fair value. For example, consistent with paragraph [718-10-55-24](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-24), an entity's starting point in estimating expected volatility might be its historical volatility. That entity also shall consider the extent to which currently available information indicates that future volatility will differ from the historical volatility. An example of such information is implied volatility (from traded options or other instruments).

##### [718-10-55-42](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-42)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4fec30d2d09dd1c3e19c345888ca818f3ea2b5c7366bbf7d17dfefec2545dadf

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Option-pricing models generally call for expected dividend yield as an assumption. However, the models may be modified to use an expected dividend amount rather than a yield. An entity may use either its expected yield or its expected payments. Additionally, an entity's historical pattern of dividend increases (or decreases) shall be considered. For example, if an entity has historically increased dividends by approximately 3 percent per year, its estimated share option value shall not be based on a fixed dividend amount throughout the share option's expected term. As with other assumptions in an option-pricing model, an entity shall use the expected dividends that would likely be reflected in an amount at which the option would be exchanged (see paragraph [718-10-55-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-13)).

##### [718-10-55-43](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-43)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:71b99aa153e730de74c63c338178e224380974ef17911c043765660e957e9b88

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As with other aspects of estimating fair value, the objective is to determine the assumption about expected dividends that would likely be used by marketplace participants in determining an exchange price for the option.

##### [718-10-55-44](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-44)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:2f4a97d1f7e58f9ecf6085e94b1c6a02fef51911bfce707277ceda2f7191c8fc

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Expected dividends are taken into account in using an option-pricing model to estimate the fair value of a share option because dividends paid on the underlying shares reduce the fair value of those shares and option holders generally are not entitled to receive those dividends. However, an award of share options may be structured to protect option holders from that effect by providing them with some form of dividend rights. Such dividend protection may take a variety of forms and shall be appropriately reflected in estimating the fair value of a share option. For example, if a dividend paid on the underlying shares is applied to reduce the exercise price of the option, the effect of the dividend protection is appropriately reflected by using an expected dividend assumption of zero.

##### [718-10-55-45](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-45)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:fb938382eec5b38c0144573bfbf9d24f34bbba6a339c1191b33e49bb8f115161

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In certain situations, grantees may receive the dividends paid on the underlying equity shares while the option is outstanding. Dividends or dividend equivalents paid to grantees on the portion of an award of equity shares or other equity instruments that vests shall be charged to retained earnings. If grantees are not required to return the dividends or dividend equivalents received if they forfeit their awards, dividends or dividend equivalents paid on instruments that do not vest shall be recognized as additional compensation cost. If an entity's accounting policy is to estimate the number of awards expected to be forfeited in accordance with paragraph [718-10-35-1D](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D) or [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3), the estimate of compensation cost for dividends or dividend equivalents paid on instruments that are not expected to vest shall be consistent with an entity's estimates of forfeitures. Dividends and dividend equivalents shall be reclassified between retained earnings and compensation cost in a subsequent period if the entity changes its forfeiture estimates (or actual forfeitures differ from previous estimates). If an entity's accounting policy is to account for forfeitures when they occur in accordance with paragraph [718-10-35-1D](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D) or [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3), the entity shall reclassify to compensation cost in the period in which the forfeitures occur the amount of dividends and dividend equivalents previously charged to retained earnings relating to awards that are forfeited.

##### [718-10-55-46](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-46)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:fe9374d4640e97c394c1e091f493c895c16f7c91d66244708c9d4c5a56ba6694

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity may need to consider the effect of its credit risk on the estimated fair value of liability awards that contain cash settlement features because potential cash payoffs from the awards are not independent of the entity's risk of default. Any credit-risk adjustment to the estimated fair value of awards with cash payoffs that increase with increases in the price of the underlying share is expected to be de minimis because increases in an entity's share price generally are positively associated with its ability to liquidate its liabilities. However, a credit-risk adjustment to the estimated fair value of awards with cash payoffs that increase with decreases in the price of the entity's shares may be necessary because decreases in an entity's share price generally are negatively associated with an entity's ability to liquidate its liabilities.

##### [718-10-55-47](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-47)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:e5361e8812e574a7c80bcfdbc955c15b6054b630515cfa5f0c576336f622c76c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Contingent features that might cause a grantee to return to the entity either equity shares earned or realized gains from the sale of equity instruments earned as a result of share-based payment arrangements, such as a clawback feature (see paragraph [718-10-55-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-8)), shall not be reflected in estimating the grant-date fair value of an equity instrument. Instead, the effect of such a contingent feature shall be accounted for if and when the contingent event occurs. For instance, a share-based payment arrangement may stipulate the return of vested equity shares to the issuing entity for no consideration if the grantee terminates the employment or vendor relationship to work for a competitor. The effect of that provision on the grant-date fair value of the equity shares shall not be considered. If the issuing entity subsequently receives those shares (or their equivalent value in cash or other assets) as a result of that provision, a credit shall be recognized in the income statement upon the receipt of the shares. That credit is limited to the lesser of the recognized compensation cost associated with the share-based payment arrangement that contains the contingent feature and the fair value of the consideration received. The event is recognized in the income statement because the resulting transaction takes place with a grantee as a result of the current (or prior) employment or vendor relationship rather than as a result of the grantee's role as an equity owner. Example 10 (see paragraph [718-20-55-84](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-84)) provides an illustration of the accounting for an employee award that contains a clawback feature, which also applies to nonemployee awards.

##### [718-10-55-48](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-48)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:87fa20bde203dc1a44c051efd68dadaec52ccacd697efa5ba7fdcb28ab0754d3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Traded options ordinarily are written by parties other than the entity that issues the underlying shares, and when exercised result in an exchange of already outstanding shares between those parties. In contrast, exercise of share options as part of a share-based payment transaction results in the issuance of new shares by the entity that wrote the option (the grantor), which increases the number of shares outstanding. That dilution might reduce the fair value of the underlying shares, which in turn might reduce the benefit realized from option exercise.

##### [718-10-55-49](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-49)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:cd58ff0ee91eb9e0dd76c0ddae8bcf03f5121106075bca319a07f12efe552a04

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the market for an entity's shares is reasonably efficient, the effect of potential dilution from the exercise of share options that are part of a share-based payment transaction will be reflected in the market price of the underlying shares, and no adjustment for potential dilution usually is needed in estimating the fair value of the grantee share options. For a public entity, an exception might be a large grant of options that the market is not expecting, and also does not believe will result in commensurate benefit to the entity. For a nonpublic entity, on the other hand, potential dilution may not be fully reflected in the share price if sufficient information about the frequency and size of the entity's grants of equity share options is not available for third parties who may exchange the entity's shares to anticipate the dilutive effect.

##### [718-10-55-50](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-50)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:ad52a02f8e37e50879db820492bfce409a449a591c7230079a7941d0feadcfb1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall consider whether the potential dilutive effect of an award of share options needs to be reflected in estimating the fair value of its options at the grant date. For public entities, the expectation is that situations in which such a separate adjustment is needed will be rare.

##### [718-10-55-50A](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-50A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:97e7854a77ddec59fc6405751f1607e1050e2abc0d71fd169b9e435bb5ba8eb8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In accordance with paragraph [718-10-30-20A](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20A), a nonpublic entity may elect a practical expedient to estimate the expected term. For liability-classified awards, an entity would update the estimate of the expected term each reporting period until settlement. The updated estimate should reflect the loss of time value associated with the award and any change in the assessment of whether a performance condition is probable of being achieved.

##### [718-10-55-51](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-51)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:181b3db8693a51bcb527432f9f9d36c78ea17054fb6e7835143a060310c56830

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Nonpublic entities may have sufficient information available on which to base a reasonable and supportable estimate of the expected volatility of their share prices. For example, a nonpublic entity that has an internal market for its shares, has private transactions in its shares, or issues new equity or convertible debt instruments may be able to consider the historical volatility, or implied volatility, of its share price in estimating expected volatility. Alternatively, a nonpublic entity that can identify similar public entities for which share or option price information is available may be able to consider the historical, expected, or implied volatility of those entities' share prices in estimating expected volatility. Similarly this information may be used to estimate the fair value of its shares or to benchmark various aspects of its performance (see paragraph [718-10-55-25](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-25)).

##### [718-10-55-52](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-52)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4fe69c0d704bd7e942e50c0685ad9cc0bd85ae18b23805fb3ce09c81c8246827

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Topic requires all entities to use the fair-value-based method to account for share-based payment arrangements that are classified as equity instruments. However, if it is not practicable for a nonpublic entity to estimate the expected volatility of its share price, paragraphs

[718-10-30-19A through 30-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-19A)

require it to use the [calculated value](https://asc.understandingaccounting.org/glossary/c/#calculated-value "A measure of the value of a share option or similar instrument determined by substituting the historical volatility of an appropriate industry sector index for the expected volatility of a nonpublic entity's share price in an option-pricing model.") method. Alternatively, it may not be possible for a nonpublic entity to reasonably estimate the fair value of its equity share options and similar instruments at the date they are granted because the complexity of the award's terms prevents it from doing so. In that case, paragraphs

[718-10-30-21 through 30-22](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-21)

require that the nonpublic entity account for its equity instruments at their [intrinsic value](https://asc.understandingaccounting.org/glossary/i/#intrinsic-value "The amount by which the fair value of the underlying stock exceeds the exercise price of an option. For example, an option with an exercise price of $20 on a stock whose current market price is $25 has an intrinsic value of $5. (A nonvested share may be described as an option on that share with an exercise price of zero. Thus, the fair value of a share is the same as the intrinsic value of such an option on that share.)"), remeasured at each reporting date through the date of exercise or other settlement.

##### [718-10-55-53](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-53)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:040f967fcfcc34b1b28dc819756392898b04bcbc8cefb0badf8ca2179b0e9524

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Many nonpublic entities that plan an initial public offering likely will be able to reasonably estimate the fair value of their equity share options and similar instruments using the guidance on selecting an appropriate expected volatility assumption provided in paragraphs

[718-10-55-35 through 55-41](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-35)

.

##### [718-10-55-54](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-54)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:9845e7237c00052519e579a4280cf417b2ab59e83c80c15c47a6269c72c07ef0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Estimating the expected volatility of a nonpublic entity's shares may be difficult and that the resulting estimated fair value may be more subjective than the estimated fair value of a public entity's options. However, many nonpublic entities could consider internal and industry factors likely to affect volatility, and the average volatility of comparable entities, to develop an estimate of expected volatility. Using an expected volatility estimate determined in that manner often would result in a reasonable estimate of fair value.

##### [718-10-55-55](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-55)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:7b3abb3245319c301b66c7968acc685f630b1aebddbfd827f27f27916b6ca186

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For purposes of this Topic, it is not practicable for a nonpublic entity to estimate the expected volatility of its share price if it is unable to obtain sufficient historical information about past volatility, or other information such as that noted in paragraph [718-10-55-51](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-51), on which to base a reasonable and supportable estimate of expected volatility at the grant date of the award without undue cost and effort. In that situation, this Topic requires a nonpublic entity to estimate a value for its equity share options and similar instruments by substituting the historical volatility of an appropriate industry sector index for the expected volatility of its share price as an assumption in its valuation model. All other inputs to a nonpublic entity's valuation model shall be determined in accordance with the guidance in paragraphs

[718-10-55-4 through 55-47](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-4)

.

##### [718-10-55-56](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-56)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:58e41c18965926cfb598908988307e758a4f61f63a09fdb500493d954178da20

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


There are many different indexes available to consider in selecting an appropriate industry sector index. For example, Dow Jones Indexes maintain a global series of stock market indexes with industry sector splits available for many countries, including the United States. The historical values of those indexes are easily obtainable from its website. An appropriate industry sector index is one that is representative of the industry sector in which the nonpublic entity operates and that also reflects, if possible, the size of the entity. If a nonpublic entity operates in a variety of different industry sectors, then it might select a number of different industry sector indexes and weight them according to the nature of its operations; alternatively, it might select an index for the industry sector that is most representative of its operations. If a nonpublic entity operates in an industry sector in which no public entities operate, then it shall select an index for the industry sector that is most closely related to the nature of its operations. However, in no circumstances shall a nonpublic entity use a broad-based market index like the S&P 500, Russell 3000, or Dow Jones Wilshire 5000 because those indexes are sufficiently diversified as to be not representative of the industry sector, or sectors, in which the nonpublic entity operates.

##### [718-10-55-57](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-57)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:fc9106aba21d354b06908b1a953c012d6436552a375ddda5d834c829a9852e2f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A nonpublic entity shall use the selected index consistently, unless the nature of the entity's operations changes such that another industry sector index is more appropriate, in applying the calculated value method in both the following circumstances:

1.  a
    
    For all of its equity share options or similar instruments
    
2.  b
    
    In each accounting period.

##### [718-10-55-58](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-58)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:336f34983792f735bbae02b553f7fa102330142a0c1115498f11e512d36d9a21

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The calculation of the historical volatility of an appropriate industry sector index shall be made using the daily historical closing values of the index selected for the period of time prior to the grant date (or service inception date) of the equity share option or similar instrument that is equal in length to the expected term of the equity share option or similar instrument. If daily values are not readily available, then an entity shall use the most frequent observations available of the historical closing values of the selected index. If historical closing values of the index selected are not available for the entire expected term, then a nonpublic entity shall use the closing values for the longest period of time available. The method used shall be consistently applied (see paragraph [718-10-55-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-27)). Example 9 (see paragraph [718-20-55-77](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-77)) provides an illustration of accounting for an equity share option award granted by a nonpublic entity that uses the calculated value method.

##### [718-10-55-59](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-59)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:e211afaef5091b9a2ced720479b4b364a6c84ea59442c8348270377b5d507e0b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This guidance is organized as follows:

1.  a
    
    Market, performance, and service conditions that affect vesting and exercisability
    
2.  b
    
    Market, performance, and service conditions that affect factors other than vesting and exercisability
    
3.  c
    
    Estimating the employee's requisite service period
    
4.  d
    
    Explicit, implicit, and derived employee's requisite service periods.

##### [718-10-55-60](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-60)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:8395181f739d0f8d58c4b352180f328c7b0d6e897aa7281b65783aeb0fa030d3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A grantee's share-based payment award becomes vested at the date that the grantee's right to receive or retain equity shares, other equity instruments, or assets under the award is no longer contingent on satisfaction of either a performance condition or a [service condition](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."). This Topic distinguishes among market conditions, performance conditions, and service conditions that affect the vesting or exercisability of an award (see paragraphs [718-10-30-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-12) and [718-10-30-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-14)). Exercisability is used for market conditions in the same context as vesting is used for performance and service conditions. Other conditions affecting vesting, exercisability, exercise price, and other pertinent factors in measuring fair value that do not meet the definitions of a market condition, performance condition, or service condition are discussed in paragraph [718-10-55-65](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-65).

##### [718-10-55-61](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-61)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:651abfa545f6b0ec710745cb7d397048523380a6da860f291cc39c1380c09029

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Analysis of the market, performance, or service conditions (or any combination thereof) that are explicit or implicit in the terms of an award is required to determine the employee's requisite service period or the nonemployee's vesting period over which compensation cost is recognized and whether recognized compensation cost may be reversed if an award fails to vest or become exercisable (see paragraph [718-10-30-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-27)). If exercisability or the ability to retain the award (for example, an award of equity shares may contain a market condition that affects the grantee's ability to retain those shares) is based solely on one or more market conditions compensation cost for that award is recognized if the grantee delivers the promised good or renders the service, even if the market condition is not satisfied. If exercisability (or the ability to retain the award) is based solely on one or more market conditions, compensation cost for that award is reversed if the grantee does not deliver the promised good or render the service, unless the market condition is satisfied prior to the end of the employee's requisite service period or the nonemployee's vesting period, in which case any unrecognized compensation cost would be recognized at the time the market condition is satisfied. If vesting is based solely on one or more performance or service conditions, any previously recognized compensation cost is reversed if the award does not vest (that is, the good is not delivered or the service is not rendered or the performance condition is not achieved). Examples 1 through 4 (see paragraphs

[718-20-55-4 through 55-50](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-4)

) provide illustrations of awards in which vesting is based solely on performance or service conditions.

##### [718-10-55-61A](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-61A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:f8f8e73d4a5ea84afe7e34654cf48e057c78e14720baa0b24fa9b560f22fdf01

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An employee award containing one or more market conditions may have an [explicit](https://asc.understandingaccounting.org/glossary/e/#explicit-service-period "A service period that is explicitly stated in the terms of a share-based payment award. For example, an award stating that it vests after three years of continuous employee service from a given date (usually the grant date) has an explicit service period of three years. See Derived Service Period, Implicit Service Period, and Requisite Service Period."), [implicit](https://asc.understandingaccounting.org/glossary/i/#implicit-service-period "A service period that is not explicitly stated in the terms of a share-based payment award but that may be inferred from an analysis of those terms and other facts and circumstances. For instance, if an award of share options vests upon the completion of a new product design and it is probable that the design will be completed in 18 months, the implicit service period is 18 months. See Derived Service Period, Explicit Service Period, and Requisite Service Period."), or [derived service period](https://asc.understandingaccounting.org/glossary/d/#derived-service-period "A service period for an award with a market condition that is inferred from the application of certain valuation techniques used to estimate fair value. For example, the derived service period for an award of share options that the employee can exercise only if the share price increases by 25 percent at any time during a 5-year period can be inferred from certain valuation techniques. In a lattice model, that derived service period represents the duration of the median of the distribution of share price paths on which the market condition is satisfied. That median is the middle share price path (the midpoint of the distribution of paths) on which the market condition is satisfied. The duration is the period of time from the service inception date to the expected date of satisfaction (as inferred from the valuation technique). If the derived service period is three years, the estimated requisite service period is three years and all compensation cost would be recognized over that period, unless the market condition was satisfied at an earlier date. Compensation cost would not be recognized beyond three years even if after the grant date the entity determines that it is not probable that the market condition will be satisfied within that period. Further, an award of fully vested, deep out-of-the-money share options has a derived service period that must be determined from the valuation techniques used to estimate fair value. See Explicit Service Period, Implicit Service Period, and Requisite Service Period."). Paragraphs

[718-10-55-69 through 55-79](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-69)

provide guidance on explicit, implicit, and derived service periods.

##### [718-10-55-62](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-62)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:0b289957d184f71cdde72ec1be3ae17b78ee5ddc448037997839af0f13a2b900

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Vesting or exercisability may be conditional on satisfying two or more types of conditions (for example, vesting and exercisability occur upon satisfying both a market and a performance or service condition). Vesting also may be conditional on satisfying one of two or more types of conditions (for example, vesting and exercisability occur upon satisfying either a market condition or a performance or service condition). Regardless of the nature and number of conditions that must be satisfied, the existence of a market condition requires recognition of compensation cost if the good is delivered or the service is rendered, even if the market condition is never satisfied.

##### [718-10-55-63](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-63)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:e5be02ff7bbb640a7e9b6ddc6ef77293873fa01732bd4576ce2235bc30f26db0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Even if only one of two or more conditions must be satisfied and a market condition is present in the terms of the award, then compensation cost is recognized if the good is delivered or the service is rendered, regardless of whether the market, performance, or service condition is satisfied (see Example 5 \[paragraph [718-10-55-100](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-100)\] for an example of such an employee award).

##### [718-10-55-64](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-64)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:9dae069e3adae3b62e8485dcd1a88aa024d71085c4d565f2776f93c17b941c81

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Market, performance, and service conditions may affect an award's exercise price, contractual term, quantity, conversion ratio, or other pertinent factors that are relevant in measuring an award's fair value. For instance, an award's quantity may double, or an award's contractual term may be extended, if a company-wide revenue target is achieved. Market conditions that affect an award's fair value (including exercisability) are included in the estimate of grant-date fair value (see paragraph [718-10-30-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-15)). Performance or service conditions that only affect vesting are excluded from the estimate of grant-date fair value, but all other performance or service conditions that affect an award's fair value are included in the estimate of grant-date fair value (see that same paragraph). Examples 3, 4, and 6 (see paragraphs [718-20-55-41](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-41), [718-20-55-47](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-47), and [718-20-55-61](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-61)) provide further guidance on how performance conditions are considered in the estimate of grant-date fair value.

##### [718-10-55-65](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-65)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:f4ca34abd8117e7f7f85e43d29642a5593ee8e73507dadae5d2d52bbcd0fffe2

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 factor is not a market, performance, or service condition, that award shall be classified as a liability for purposes of this Topic (see paragraphs [718-10-25-13 through 25-14A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-13)). An example would be an award of options whose exercise price is indexed to the market price of a commodity, such as gold. Another example would be a share award that will vest based on the appreciation in the price of a commodity, such as gold; that award is indexed to both the value of that commodity and the issuing entity's shares. If an award is so indexed, the relevant factors shall be included in the fair value estimate of the award. Such an award would be classified as a liability even if the entity granting the share-based payment instrument is a producer of the commodity whose price changes are part or all of the conditions that affect an award's vesting conditions or fair value.

##### [718-10-55-66](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-66)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:0a59eaa9228813a61a31988b8e9d74e22c77711e3aae8fa73c5b78dd54c8fe2f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following flowchart provides guidance on determining how to account for an award based on the existence of market, performance, or service conditions (or any combination thereof).

-   Accounting for Awards with Market, Performance, or Service Conditions
    
-   ![](https://asc.understandingaccounting.org/asc-img/GUID-5C74634C-EF9E-41CE-BB77-A8DCEA7AE0BF-low.gif)

##### [718-10-55-67](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-67)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:f52b5b1bb0157aecde4b2bdd147e2ebe34ec3c5684c0627ce7fb742af979c734

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph [718-10-35-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-2) requires that compensation cost be recognized over the requisite service period. The requisite service period for an award that has only a service condition is presumed to be the vesting period, unless there is clear evidence to the contrary. The requisite service period shall be estimated based on an analysis of the terms of the award and other relevant facts and circumstances, including co-existing employment agreements and an entity's past practices; that estimate shall ignore nonsubstantive vesting conditions. For example, the grant of a deep out-of-the-money share option award without an explicit service condition will have a derived service period. Likewise, if an award with an explicit service condition that was at-the-money when granted is subsequently modified to accelerate vesting at a time when the award is deep out-of-the-money, that [modification](https://asc.understandingaccounting.org/glossary/m/#modification "A change in the terms or conditions of a share-based payment award.") is not substantive because the explicit service condition is replaced by a derived service condition. If a market, performance, or service condition requires future service for vesting (or exercisability), an entity cannot define a prior period as the requisite service period. The requisite service period for awards with market, performance, or service conditions (or any combination thereof) shall be consistent with assumptions used in estimating the grant-date fair value of those awards.

##### [718-10-55-68](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-68)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:0537c6c08a5159526590a3124c17d10eab22aea2779ef6e4715616d3e9d3528e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An employee's share-based payment award becomes vested at the date that the employee's right to receive or retain equity shares, other equity instruments, or cash under the award is no longer contingent on satisfaction of either a performance condition or a service condition. Any unrecognized compensation cost shall be recognized when an award becomes vested. If an award includes no market, performance, or service conditions, then the entire amount of compensation cost shall be recognized when the award is granted (which also is the date of issuance in this case). Example 1 (see paragraph [718-10-55-86](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-86)) provides an illustration of estimating the requisite service period.

##### [718-10-55-69](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-69)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:0ca2f6467543d34cf6eb73e526e833697ff37379ffbefb888ac2fadc4cb51708

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A requisite service period for an employee may be explicit, implicit, or derived. An [explicit service period](https://asc.understandingaccounting.org/glossary/e/#explicit-service-period "A service period that is explicitly stated in the terms of a share-based payment award. For example, an award stating that it vests after three years of continuous employee service from a given date (usually the grant date) has an explicit service period of three years. See Derived Service Period, Implicit Service Period, and Requisite Service Period.") is one that is stated in the terms of the share-based payment award. For example, an award that vests after three years of continuous employee service has an explicit service period of three years, which also would be the requisite service period.

##### [718-10-55-70](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-70)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:3dbaa5f9bb5a42a8edb5d07a899bdf7a1ffa982a053dbe2930217055a6082f68

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An [implicit service period](https://asc.understandingaccounting.org/glossary/i/#implicit-service-period "A service period that is not explicitly stated in the terms of a share-based payment award but that may be inferred from an analysis of those terms and other facts and circumstances. For instance, if an award of share options vests upon the completion of a new product design and it is probable that the design will be completed in 18 months, the implicit service period is 18 months. See Derived Service Period, Explicit Service Period, and Requisite Service Period.") is one that may be inferred from an analysis of an award's terms. For example, if an award of share options vests only upon the completion of a new product design and the design is expected to be completed 18 months from the grant date, the implicit service period is 18 months, which also would be the requisite service period.

##### [718-10-55-71](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-71)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:9977f410f9031770f9d77db3c3a40f85390ad03acdb285d8c3f314b901d55085

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A derived service period is based on a market condition in a share-based payment award that affects exercisability, exercise price, or the employee's ability to retain the award. A derived service period is inferred from the application of certain valuation techniques used to estimate fair value. For example, the derived service period for an award of share options that an employee can exercise only if the share price doubles at any time during a five-year period can be inferred from certain valuation techniques that are used to estimate fair value. This example, and others noted in this Section, implicitly assume that the rights conveyed by the instrument to the holder are dependent on the holder's being an employee of the entity. That is, if the employment relationship is terminated, the award lapses or is forfeited shortly thereafter. In a lattice model, that derived service period represents the duration of the median of the distribution of share price paths on which the market condition is satisfied. That median is the middle share price path (the midpoint of the distribution of paths) on which the market condition is satisfied. The duration is the period of time from the service inception date to the expected date of market condition satisfaction (as inferred from the valuation technique). For example, if the derived service period is three years, the requisite service period is three years and all compensation cost would be recognized over that period, unless the market condition is satisfied at an earlier date, in which case any unrecognized compensation cost would be recognized immediately upon its satisfaction. If the requisite service is not rendered, all previously recognized compensation cost would be reversed. If the requisite service is rendered, the recognized compensation is not reversed even if the market condition is never satisfied. An entity that uses a closed-form model to estimate the grant-date fair value of an award with a market condition may need to use another valuation technique to estimate the derived service period.

##### [718-10-55-72](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-72)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:6d605507c205eab249429ada8dfbe708d5825063e94fa816d5469b73e146232f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An award with a combination of market, performance, or service conditions may contain multiple explicit, implicit, or derived service periods. For such an award, the estimate of the requisite service period shall be based on an analysis of all of the following:

1.  a
    
    All vesting and exercisability conditions
    
2.  b
    
    All explicit, implicit, and derived service periods
    
3.  c
    
    The probability that performance or service conditions will be satisfied.

##### [718-10-55-73](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-73)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:6ce2a6b74d8e82547fa9cdcbab7d533adddc1c66a86ea65eefd4a5383f6de337

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Thus, if vesting (or exercisability) of an award is based on satisfying both a market condition and a performance or service condition and it is probable that the performance or service condition will be satisfied, the initial estimate of the requisite service period generally is the longest of the explicit, implicit, or derived service periods. If vesting (or exercisability) of an award is based on satisfying either a market condition or a performance or service condition and it is probable that the performance or service condition will be satisfied, the initial estimate of the requisite service period generally is the shortest of the explicit, implicit, or derived service periods.

##### [718-10-55-74](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-74)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:91920a9f18f07493a3c7f33a8f12c3f116ecf06350a31b733fee4928e360cac8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For example, a share option might specify that vesting occurs after three years of continuous employee service or when the employee completes a specified project. The employer estimates that it is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that the project will be completed within 18 months. The employer also believes it is probable that the service condition will be satisfied. Thus, that award contains an explicit service period of 3 years related to the service condition and an implicit service period of 18 months related to the performance condition. Because it is considered probable that both the performance condition and the service condition will be achieved, the requisite service period over which compensation cost is recognized is 18 months, which is the shorter of the explicit and implicit service periods.

##### [718-10-55-75](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-75)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:c4bac1153d4d2256ee3dc31416153c30315da954788e3e5a3eb39d8103b080cd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As illustrated in the preceding paragraph , if an award vests upon the earlier of the satisfaction of a service condition (for example, four years of service) or the satisfaction of one or more performance conditions, it will be necessary to estimate when, if at all, the performance conditions are probable of achievement. For example, if initially the four-year service condition is probable of achievement and no performance condition is probable of achievement, the requisite service period is four years. If one year into the four-year requisite service period a performance condition becomes probable of achievement by the end of the second year, the requisite service period would be revised to two years for attribution of compensation cost (at that point in time, there would be only one year of the two-year requisite service period remaining).

##### [718-10-55-76](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-76)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:e7ab40c38ea37e1893740d18b948a2b0d2a1a5fb01dfcb903838cbc70103d235

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If an award vests upon the satisfaction of both a service condition and the satisfaction of one or more performance conditions, the entity also must initially determine which outcomes are probable of achievement. For example, an award contains a four-year service condition and two performance conditions, all of which need to be satisfied. If initially the four-year service condition is probable of achievement and no performance condition is probable of achievement, then no compensation cost would be recognized unless the two performance conditions and the service condition subsequently become probable of achievement. If both performance conditions become probable of achievement one year after the grant date and the entity estimates that both performance conditions will be achieved by the end of the second year, the requisite service period would be four years as that is the longest period of both the explicit service period and the implicit service periods. Because the performance conditions are now probable of achievement, compensation cost will be recognized in the period of the change in estimate (see paragraph [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3)) as the cumulative effect on current and prior periods of the change in the estimated number of awards for which the requisite service is expected to be rendered. Therefore, compensation cost for the first year will be recognized immediately at the time of the change in estimate for the awards for which the requisite service is expected to be rendered. The remaining unrecognized compensation cost for those awards would be recognized prospectively over the remaining requisite service period. An entity that has an accounting policy to account for forfeitures when they occur in accordance with paragraph [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3) would assume that the achievement of a service condition is probable when determining the amount of compensation cost to recognize unless the award has been forfeited.

##### [718-10-55-77](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-77)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:45c69ea668c3721db9bcb3b63058d2468048a2164c638e73787ccbd8e784f83d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As indicated in paragraph [718-10-55-75](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-75), the initial estimate of the requisite service period based on an explicit or implicit service period shall be adjusted for changes in the expected and actual outcomes of the related service or performance conditions that affect vesting of the award. Such adjustments will occur as the entity revises its estimates of whether or when different conditions or combinations of conditions are probable of being satisfied. Compensation cost ultimately recognized is equal to the grant-date fair value of the award based on the actual outcome of the performance or service conditions (see paragraph [718-10-30-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-15)). If an award contains a market condition and a performance or a service condition and the initial estimate of the requisite service period is based on the market condition's derived service period, then the requisite service period shall not be revised unless either of the following criteria is met:

1.  a
    
    The market condition is satisfied before the end of the derived service period
    
2.  b
    
    Satisfying the market condition is no longer the basis for determining the requisite service period.

##### [718-10-55-78](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-78)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:c76dd2953c2bfb757b0dda7ec8e22e8a5d40e270c148eceb8dd41b3811149be4

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


How a change to the initial estimate of the requisite service period is accounted for depends on whether that change would affect the grant-date fair value of the award (including the quantity of instruments) that is to be recognized as compensation. For example, if the quantity of instruments for which the requisite service is expected to be rendered changes because a vesting condition becomes probable of satisfaction or if the grant-date fair value of an instrument changes because another performance or service condition becomes probable of satisfaction (for example, a performance or service condition that affects exercise price becomes probable of satisfaction), the cumulative effect on current and prior periods of those changes in estimates shall be recognized in the period of the change. In contrast, if compensation cost is already being attributed over an initially estimated requisite service period and that initially estimated period changes solely because another market, performance, or service condition becomes the basis for the requisite service period, any unrecognized compensation cost at that date of change shall be recognized prospectively over the revised requisite service period, if any (that is, no cumulative-effect adjustment is recognized).

##### [718-10-55-79](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-79)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:0633accf80b0bc76bf73e579933bd2430f36ba4bde7a2bfe2b86fd97e4c091f0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


To summarize, changes in actual or estimated outcomes that affect either the grant-date fair value of the instrument awarded or the quantity of instruments for which the requisite service is expected to be rendered (or both) are accounted for using a cumulative effect adjustment, and changes in estimated requisite service periods for awards for which compensation cost is already being attributed are accounted for prospectively only over the revised requisite service period, if any.

##### [718-10-55-80](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-80)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:8ef91d71492150dc64434e3717c0267c0e13f50a095f7413bccd9d010eea168f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This guidance expands on the guidance provided in paragraph [718-10-25-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-5).

##### [718-10-55-81](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-81)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:be4b2798c0d9482c17cd689bbbd322bd31e1bbe54db7c81a1b9b948c4b59b3b5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The definition of grant date requires that a grantor and a grantee have a mutual understanding of the key terms and conditions of the share-based compensation arrangement. Those terms may be established through any of the following:

1.  a
    
    A formal, written agreement
    
2.  b
    
    An informal, oral arrangement
    
3.  c
    
    An entity's past practice.

##### [718-10-55-82](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-82)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:684d36bbe6ced0a859ae6fa958fc7c36aec83bf20812c68e5763387c697c29aa

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A mutual understanding of the key terms and conditions means that there is sufficient basis for both the grantor and the grantee to understand the nature of the relationship established by the award, including both the compensatory relationship and the equity relationship subsequent to the date of grant. The grant date for an award will be 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. In order to assess that financial exposure, the grantor and grantee must agree to the terms; that is, there must be a mutual understanding. 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). Additionally, to have a grant date for an award to an employee, the recipient of that award must meet the definition of an [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.").

##### [718-10-55-83](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-83)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4acff6f6967473c5c6e5478d0f9c1d3ca9aea30adce3cb0c48812d1882740f96

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The determination of the grant date shall be based on the relevant facts and circumstances. For instance, a look-back share option may be granted with an exercise price equal to the lower of the current share price or the share price one year hence. The ultimate exercise price is not known at the date of grant, but it cannot be greater than the current share price. In this case, the relationship between the exercise price and the current share price provides a sufficient basis to understand both the compensatory and equity relationship established by the award; the recipient begins to benefit from subsequent changes in the price of the grantor's equity shares. However, if the award's terms call for the exercise price to be set equal to the share price one year hence, the recipient does not begin to benefit from, or be adversely affected by, changes in the price of the grantor's equity shares until then. Therefore, grant date would not occur until one year hence. Awards of share options whose exercise price is determined solely by reference to a future share price generally would not provide a sufficient basis to understand the nature of the compensatory and equity relationships established by the award until the exercise price is known.

##### [718-10-55-84](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-84)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4b05e36454d7a0fdd80e83186bdccfde28b55d1d27108ad750c51fddc8c5d50a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following paragraph further explains the guidance in paragraphs

[718-10-25-9 through 25-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-9)

.

##### [718-10-55-85](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-85)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:b54430dbfde8a532079b549e3c052176e35b036d51b556fe1869e75d795c1a61

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity may, for example, grant shares under a share-based compensation arrangement that the grantee can put (sell) to the grantor (the entity) shortly after the vesting date for cash equal to the fair value of the shares on the date of repurchase. That award of puttable shares would be classified as a liability because 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 share is issued (see paragraph [718-10-25-9(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-9)). Alternatively, an entity might grant its own shares under a share-based compensation arrangement that may be put to the grantor only after the grantee has held them for a reasonable period of time after vesting but at a fixed redemption amount. Those puttable shares also would be classified as liabilities under the requirements of this Topic because the repurchase price is based on a fixed amount rather than variations in the fair value of the grantor's shares. The grantee cannot bear the risks and rewards normally associated with equity share ownership for a reasonable period of time because of that redemption feature. However, if a share with a repurchase feature gives the grantee the right to sell shares back to the entity for a fixed amount over the fair value of the shares at the date of repurchase, paragraph [718-20-35-7](https://asc.understandingaccounting.org/asc/718/20/#718-20-35-7) requires that the fixed amount over the fair value be recognized and attributed as additional compensation cost over the employee's requisite service period (with a corresponding liability being accrued). The fixed amount over the fair value of a nonemployee award should be recognized as additional compensation cost over the vesting period (with a corresponding liability being accrued) in accordance with paragraph [718-10-25-2C](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2C).

##### [718-10-55-85A](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-85A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:8f65afddf05f395ef0f91b862d59569b9f57d83be8b4daf71b6863b404820b1d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A physician practice management entity shall determine whether an employee of the physician practice is considered an employee of the physician practice management entity for purposes of determining the method of accounting for that person's share-based compensation as follows:

1.  a
    
    An employee of a physician practice that is consolidated by the physician practice management entity shall be considered an employee of the physician practice management entity and its subsidiaries.
    
2.  b
    
    An employee of a physician practice that is not consolidated by the physician practice management entity shall not be considered an employee of the physician practice management entity and its subsidiaries.

#### Illustrations

##### [718-10-55-86](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-86)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:ed005c5ca9274dbbbb825f21e40cc8605e1835cbdab68305d4d4e7a4828a6b58

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the guidance in paragraphs

[718-10-30-25 through 30-26](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-25)

.

##### [718-10-55-87](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-87)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:910bcdbcb047ed66b5ad7ecfdb461f71c2f07d8b91a15ef979c5afb5d5435181

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Assume that Entity A uses a point system for retirement. An employee who accumulates 60 points becomes eligible to retire with certain benefits, including the retention of any nonvested share-based payment awards for their remaining contractual life, even if another explicit service condition has not been satisfied. In this case, the point system effectively accelerates vesting. On January 1, 20X5, an employee receives at-the-money options on 100 shares of Entity A's stock. All options vest at the end of 3 years of service and have a 10-year contractual term. At the grant date, the employee has 60 points and, therefore, is eligible to retire at any time.

##### [718-10-55-88](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-88)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:bc3b2b91a1fb5d88a1c9457faa24984c1df0f85825779a2f1d46c911c1dbe814

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Because the employee is eligible to retire at the grant date, the award's explicit service condition is nonsubstantive. Consequently, Entity A has granted an award that does not contain a service condition for vesting, that is, the award is effectively vested, and thus, the award's entire fair value should be recognized as compensation cost on the grant date. All of the [terms of a share-based payment award](https://asc.understandingaccounting.org/glossary/t/#terms-of-a-share-based-payment-award "The contractual provisions that determine the nature and scope of a share-based payment award. For example, the exercise price of share options is one of the terms of an award of share options. As indicated in paragraph 718-10-25-15, the written terms of a share-based payment award and its related arrangement, if any, usually provide the best evidence of its terms. However, an entity's past practice or other factors may indicate that some aspects of the substantive terms differ from the written terms. The substantive terms of a share-based payment award, as those terms are mutually understood by the entity and a party (either an employee or a nonemployee) who receives the award, provide the basis for determining the rights conveyed to a party and the obligations imposed on the issuer, regardless of how the award and related arrangement, if any, are structured. See paragraph 718-10-30-5.") and other relevant facts and circumstances must be analyzed when determining the requisite service period.

##### [718-10-55-89](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-89)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:92d807e2dedeaa1a0da2325ebec53d90d43f5d2326c5f649d187ec6171483def

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the evaluation as to whether an individual meets conditions to be considered an [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.") under the definition of that term used in this Topic.

##### [718-10-55-90](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-90)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:7d59b47ab821ccffd123fab8cc4dc78ae97474aeada8b10eb373394d4ecb26a8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Topic defines employee as 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 . An example of whether that condition exists follows. Entity A issues options to members of its Advisory Board, which is separate and distinct from Entity A's board of directors. Members of the Advisory Board are knowledgeable about Entity A's industry and advise Entity A on matters such as policy development, strategic planning, and product development. The Advisory Board members are appointed for two-year terms and meet four times a year for one day, receiving a fixed number of options for services rendered at each meeting. Based on an evaluation of the relationship between Entity A and the Advisory Board members, Entity A concludes that the Advisory Board members do not meet the common law definition of employee. Accordingly, the awards to the Advisory Board members are accounted for as awards to nonemployees under the provisions of this Topic.

##### [718-10-55-91](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-91)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:049edf50b3092e90477b5385ca81c20c86a20b625f1e530c60a87d6a4632bfa9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Nonemployee directors acting in their role as members of an entity's board of directors shall be treated as employees if those directors were elected by the entity'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 them for their services as directors. Awards granted to those individuals for other services shall be accounted for as awards to nonemployees in accordance with Section 505-50-25. Additionally, consolidated groups may have multiple boards of directors; this guidance applies only to either of the following:

1.  a
    
    The nonemployee directors acting in their role as members of a parent entity's board of directors
    
2.  b
    
    Nonemployee members of a consolidated subsidiary's board of directors to the extent that those members are elected by shareholders that are not controlled directly or indirectly by the parent or another member of the consolidated group.

##### [718-10-55-92](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-92)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:aeeb3ea2363076c9894cf708347333dd40bebbcc9deab206fe8722130597148d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following Cases illustrate employee share-based payment awards with a performance condition (see paragraphs

[718-10-25-20 through 25-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-20)

; [718-10-30-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-27); and [718-10-35-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-4)) and multiple service dates:

1.  a
    
    Performance targets are set at the inception of the arrangement (Case A).
    
2.  b
    
    Performance targets are established at some time in the future (Case B).
    
3.  c
    
    Performance targets established up front but vesting is tied to the vesting of a preceding award (Case C).

##### [718-10-55-93](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-93)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:29f11ff454e8ceaed8646a5393d47d1cc2b8c483746187a7bca7a245b8455759

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Cases A, B, and C share the following assumptions:

1.  a
    
    On January 1, 20X5, Entity T enters into an arrangement with its chief executive officer relating to 40,000 share options on its stock with an exercise price of $30 per option.
    
2.  b
    
    The arrangement is structured such that 10,000 share options will vest or be forfeited in each of the next 4 years (20X5 through 20X8) depending on whether annual performance targets relating to Entity T's revenues and net income are achieved.

##### [718-10-55-94](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-94)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:08de69a334f2f19f61ecc5d37c86e6ea8c18c8ea36ed1a22049ca010b4c2fe11

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


All of the annual performance targets are set at the inception of the arrangement. Because a mutual understanding of the key terms and conditions is reached on January 1, 20X5, each tranche would have a grant date and, therefore, a measurement date, of January 1, 20X5. However, each tranche of 10,000 share options should be accounted for as a separate award with its own service inception date, grant-date fair value, and 1-year requisite service period, because the arrangement specifies for each tranche an independent performance condition for a stated period of service. The chief executive officer's ability to retain (vest in) the award pertaining to 20X5 is not dependent on service beyond 20X5, and the failure to satisfy the performance condition in any one particular year has no effect on the outcome of any preceding or subsequent period. This arrangement is similar to an arrangement that would have provided a $10,000 cash bonus for each year for satisfaction of the same performance conditions. The four separate service inception dates (one for each tranche) are at the beginning of each year.

##### [718-10-55-95](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-95)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:6b279137330d13fb238024ed4a3e4609a5c17cdf252fc74deb9b37a088f16ff1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the arrangement had instead provided that the annual performance targets would be established during January of each year, the grant date (and, therefore, the measurement date) for each tranche would be that date in January of each year (20X5 through 20X8) because a mutual understanding of the key terms and conditions would not be reached until then. In that case, each tranche of 10,000 share options has its own service inception date, grant-date fair value, and 1-year requisite service period. The fair value measurement of compensation cost for each tranche would be affected because not all of the key terms and conditions of each award are known until the compensation committee sets the performance targets and, therefore, the grant dates are those dates.

##### [718-10-55-96](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-96)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:f7085e7384b8903684e4743c3270b46c3d84f6cd6a803f5b2b1716a49eea2d98

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the arrangement in Case A instead stated that the vesting for awards in periods from 20X6 through 20X8 was dependent on satisfaction of the performance targets related to the preceding award, the requisite service provided in exchange for each preceding award would not be independent of the requisite service provided in exchange for each successive award. In contrast to the arrangement described in Case A, failure to achieve the annual performance targets in 20X5 would result in forfeiture of all awards. The requisite service provided in exchange for each successive award is dependent on the requisite service provided for each preceding award. In that circumstance, all awards have the same service inception date and the same grant date (January 1, 20X5); however, each award has its own explicit service period (for example, the 20X5 grant has a one-year service period, the 20X6 grant has a two-year service period, and so on) over which compensation cost would be recognized. Because this award contains a performance condition, it is not subject to the attribution guidance in paragraph [718-10-35-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-8).

##### [718-10-55-97](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-97)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4e793f5badff059e6b61ae0d874155f372665e74ad4c1866047966630b1319f5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following Cases illustrate the guidance in paragraph [718-10-30-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-12) to determine the service period for employee awards with multiple service periods:

1.  a
    
    Exercise price established at subsequent dates (Case A)
    
2.  b
    
    Exercise price established at inception (Case B).

##### [718-10-55-98](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-98)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:75f44b0661bd68b87728bb2f6dd9f921e65cec8ed7c0d2373f4f45c63c102176

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The chief executive officer of Entity T enters into a five-year employment contract on January 1, 20X5. The contract stipulates that the chief executive officer will be given 10,000 fully vested share options at the end of each year (50,000 share options in total). The exercise price of each tranche will be equal to the market price at the date of issuance (December 31 of each year in the five-year contractual term). In this Case, there are five separate grant dates. The grant date for each tranche is December 31 of each year because that is the date when there is a mutual understanding of the key terms and conditions of the agreement—that is, the exercise price is known and the chief executive officer begins to benefit from, or be adversely affected by, subsequent changes in the price of the employer's equity shares (see paragraphs

[718-10-55-80 through 55-83](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-80)

for additional guidance on determining the grant date). Because the awards' terms do not include a substantive future requisite service condition that exists at the grant date (the options are fully vested when they are issued), and the exercise price (and, therefore, the grant date) is determined at the end of each period, the service inception date precedes the grant date. The requisite service provided in exchange for the first award (pertaining to 20X5) is independent of the requisite service provided in exchange for each consecutive award. The terms of the share-based compensation arrangement provide evidence that each tranche compensates the chief executive officer for one year of service, and each tranche shall be accounted for as a separate award with its own service inception date, grant date, and one-year service period; therefore, the provisions of paragraph [718-10-35-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-8) would not be applicable to this award because of its structure.

##### [718-10-55-99](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-99)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:c4704124d00a3ac663d1ed2d4bb4f2e38682378d91b3962eb5409382fe478b1e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the arrangement described in Case A provided instead that the exercise price for all 50,000 share options would be the January 1, 20X5, market price, then the grant date (and, therefore, the measurement date) for each tranche would be January 1, 20X5, because that is the date at which there is a mutual understanding of the key terms and conditions. All tranches would have the same service inception date and the same grant date (January 1, 20X5). Because of the nature of this award, Entity T would make a policy decision pursuant to paragraph [718-10-35-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-8) as to whether it considers the award as in-substance, multiple awards each with its own requisite service period (that is, the 20X5 grant has a one-year service period, the 20X6 grant has a two-year service period, and so on) or whether the entity considers the award as a single award with a single requisite service period based on the last separately vesting portion of the award (that is, a requisite service period of five years). Once chosen, this Topic requires that accounting policy be applied consistently to all similar awards.

##### [718-10-55-100](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-100)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:c66b58d8df314197b94d3033e6c28dcf24f67f429e0166804f3b61ee584c3ba5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following Cases illustrate the guidance in paragraph [718-10-35-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-5) applicable to employee awards in circumstances in which an award includes both a market condition and a service condition:

1.  a
    
    When only one condition must be met (Case A)
    
2.  b
    
    When both conditions must be met (Case B).

##### [718-10-55-101](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-101)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:71df79ea382d128b345cdb531a5026748b069d563a638343c3c641d5f84e8296

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Cases A and B share the following assumptions.

##### [718-10-55-102](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-102)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:e1148db8185a82db61e813e23f156499262d8ba316a9defb5839cf74476a6602

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


On January 1, 20X5, Entity T grants an executive 200,000 share options on its stock with an exercise price of $30 per option. The award specifies that vesting (or exercisability) will occur upon the earlier of the following for Case A or both are met for Case B:

1.  a
    
    The share price reaching and maintaining at least $70 per share for 30 consecutive trading days
    
2.  b
    
    The completion of eight years of service.

##### [718-10-55-103](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-103)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:56998c086dd8309833b595b8303a1c89db47425ed437b2c91191a4e123cb4d2f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The award contains an explicit service period of eight years related to the service condition and a derived service period related to the market condition.

##### [718-10-55-104](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-104)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:27d99a8f36333b83a4470a8d8d32bf6040c51d9c458c2dcbe198e6e95adff647

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall make its best estimate of the [derived service period](https://asc.understandingaccounting.org/glossary/d/#derived-service-period "A service period for an award with a market condition that is inferred from the application of certain valuation techniques used to estimate fair value. For example, the derived service period for an award of share options that the employee can exercise only if the share price increases by 25 percent at any time during a 5-year period can be inferred from certain valuation techniques. In a lattice model, that derived service period represents the duration of the median of the distribution of share price paths on which the market condition is satisfied. That median is the middle share price path (the midpoint of the distribution of paths) on which the market condition is satisfied. The duration is the period of time from the service inception date to the expected date of satisfaction (as inferred from the valuation technique). If the derived service period is three years, the estimated requisite service period is three years and all compensation cost would be recognized over that period, unless the market condition was satisfied at an earlier date. Compensation cost would not be recognized beyond three years even if after the grant date the entity determines that it is not probable that the market condition will be satisfied within that period. Further, an award of fully vested, deep out-of-the-money share options has a derived service period that must be determined from the valuation techniques used to estimate fair value. See Explicit Service Period, Implicit Service Period, and Requisite Service Period.") related to the market condition (see paragraph [718-10-55-71](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-71)). The derived service period may be estimated using any reasonable methodology, including Monte Carlo simulation techniques. For this Case, the derived service period is assumed to be six years. As described in paragraphs

[718-10-55-72 through 55-73](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-72)

, if an award's vesting (or exercisability) is conditional upon the achievement of either a market condition or performance or service conditions, the requisite service period is generally the shortest of the explicit, implicit, and derived service periods. In this Case, the requisite service period over which compensation cost would be attributed is six years (shorter of eight and six years). (An entity may grant a fully vested deep out-of-the-money share option that would lapse shortly after termination of service, which is the equivalent of an award with both a market condition and a service condition. The explicit service period associated with the explicit service condition is zero; however, because the option is deep out-of-the-money at the grant date, there would be a derived service period.)

##### [718-10-55-105](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-105)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:52d35539621c6cdbaf19b713b002daa39d97740ef27ad9de283b51377c6d1c9e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Continuing with this Case, if the market condition is actually satisfied in February 20X9 (based on market prices for the prior 30 consecutive trading days), Entity T would immediately recognize any unrecognized compensation cost because no further service is required to earn the award. If the market condition is not satisfied as of that date but the executive renders the six years of requisite service, compensation cost shall not be reversed under any circumstances.

##### [718-10-55-106](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-106)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:5dd60002b1ad7149f9b91581a5a58b41d9c186bd96fb8d51fd836b924254a69a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The initial estimate of the requisite service period for an award requiring satisfaction of both market and performance or service conditions is generally the longest of the explicit, implicit, and derived service periods (see paragraphs

[718-10-55-72 through 55-73](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-72)

). For example, if the award described in Case A required both the completion of 8 years of service and the share price reaching and maintaining at least $70 per share for 30 consecutive trading days, compensation cost would be recognized over the 8-year explicit service period. If the employee were to terminate service prior to the eight-year requisite service period, compensation cost would be reversed even if the market condition had been satisfied by that time.

##### [718-10-55-107](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-107)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:fa8b425d3f30fff636c5f5af523b7c2194a3c2c0d0cd5b4ec55226ee04f8e094

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following Example illustrates the guidance in paragraph [718-10-35-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-6).

##### [718-10-55-108](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-108)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:ec543019daed20e944a2dc334796d8a558ccb7b9b4e89504ff8a2fc0e0e5d235

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Topic distinguishes between [service inception date](https://asc.understandingaccounting.org/glossary/s/#service-inception-date "The date at which the employee's requisite service period or the nonemployee's vesting period begins. The service inception date usually is the grant date, but the service inception date may differ from the grant date (see Example 6 [see paragraph 718-10-55-107] for an illustration of the application of this term to an employee award).") and [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."). The service inception date is the date at which the requisite service period begins. The service inception date usually is the grant date, but the service inception date precedes the grant date if all of the following criteria are met:

1.  a
    
    An award is authorized. (Compensation cost would not be recognized before receiving all necessary approvals unless approval is essentially a formality \[or perfunctory\].)
    
2.  b
    
    Service begins before a mutual understanding of the key terms and conditions of a share-based payment award is reached.
    
3.  c
    
    Either of the following conditions applies:
    
    1.  1
        
        The award's terms do not include a substantive future requisite service condition that exists at the grant date (see paragraph [718-10-55-113](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-113) for an example illustrating that condition).
        
    2.  2
        
        The award contains a market or performance condition that if not satisfied during the service period preceding the grant date and following the inception of the arrangement results in forfeiture of the award (see paragraph [718-10-55-114](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-114) for an example illustrating that condition).

##### [718-10-55-109](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-109)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:247d3c5989fbb38c3449440a5c0da7d98c9b96eefc9e9bf4b8b7c28c6c69e44a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In certain circumstances the service inception date may begin after the grant date (see paragraphs

[718-10-55-93 through 55-94](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-93)

for an example illustrating that circumstance).

##### [718-10-55-110](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-110)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:2410a0fc88484ef427af023f78369d647ab278edeaeef2b6483ce23190072e27

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For example, Entity T offers a position to an individual on April 1, 20X5, that has been approved by the chief executive officer and board of directors. In addition to salary and other benefits, Entity T offers to grant 10,000 shares of Entity T stock that vest upon the completion of 5 years of service (the market price of Entity T's stock is $25 on April 1, 20X5). The share award will begin vesting on the date the offer is accepted. The individual accepts the offer on April 2, 20X5, but is unable to begin providing services to Entity T until June 2, 20X5 (that is, substantive employment begins on June 2, 20X5). The individual also does not receive a salary or participate in other employee benefits until June 2, 20X5. On June 2, 20X5, the market price of Entity T stock is $40. In this Example, the service inception date is June 2, 20X5, the first date that the individual begins providing substantive employee services to Entity T. The grant date is the same date because that is when the individual would meet the definition of an employee. The grant-date fair value of the share award is $400,000 (10,000 × $40).

##### [718-10-55-111](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-111)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:fe2aedd6c210754c4d31efa8e7c992e623d1e82c89a8b26ee70249d3ab59f36e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If necessary board approval of the award described in the preceding paragraph was obtained on August 5, 20X5, two months after substantive employment begins (June 2, 20X5), both the service inception date and the grant date would be August 5, 20X5, as that is the date when all necessary authorizations were obtained. If the market price of Entity T's stock was $38 per share on August 5, 20X5, the grant-date fair value of the share award would be $380,000 (10,000 × $38). Additionally, Entity T would not recognize compensation cost for the shares for the period between June 2, 20X5, and August 4, 20X5, neither during that period nor cumulatively on August 5, 20X5, when both the service inception date and the grant date occur. This is consistent with the definition of requisite service period, which states that if an award requires future service for vesting, the entity cannot define a prior period as the requisite service period. Future service in this context represents the service to be rendered beginning as of the service inception date.

##### [718-10-55-112](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-112)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:516ea920f2d058e389fba26a05232509ddd4fdf6fc105f48fe8c397f54356b28

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the service inception date precedes the grant date, recognition of compensation cost for periods before the grant date shall be based on the fair value of the award at the reporting dates that occur before the grant date. In the period in which the grant date occurs, cumulative compensation cost shall be adjusted to reflect the cumulative effect of measuring compensation cost based on the fair value at the grant date rather than the fair value previously used at the service inception date (or any subsequent reporting dates) (see paragraph [718-10-35-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-6)).

##### [718-10-55-113](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-113)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:2b84b398b78b99570553191c4ac13b7cd1a375c33afbfe18494fa9b325bc6891

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If an award's terms do not include a substantive future requisite service condition that exists at the grant date, the service inception date can precede the grant date. For example, on January 1, 20X5, an employee is informed that an award of 100 fully vested options will be made on January 1, 20X6, with an exercise price equal to the share price on January 1, 20X6. All approvals for that award have been obtained as of January 1, 20X5. That individual is still an employee on January 1, 20X6, and receives the 100 fully vested options on that date. There is no substantive future service period associated with the options after January 1, 20X6. Therefore, the requisite service period is from the January 1, 20X5, service inception date through the January 1, 20X6, grant date, as that is the period during which the employee is required to perform service in exchange for the award. The relationship between the exercise price and the current share price that provides a sufficient basis to understand the equity relationship established by the award is known on January 1, 20X6. Compensation cost would be recognized during 20X5 in accordance with the preceding paragraph.

##### [718-10-55-114](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-114)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:7da9fb0cc4f0276a0faa6300da55790df02e988902ffe38d10043969f8aff0b8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If an award contains either a market or a performance condition, which if not satisfied during the service period preceding the grant date and following the date the award is given results in a forfeiture of the award, then the service inception date may precede the grant date. For example, an authorized award is given on January 1, 20X5, with a two-year cliff vesting service requirement commencing on that date. The exercise price will be set on January 1, 20X6. The award will be forfeited if Entity T does not sell 1,000 units of product X in 20X5. In this Example, the employee earns the right to retain the award if the performance condition is met and the employee renders service in 20X5 and 20X6. The requisite service period is two years beginning on January 1, 20X5. The service inception date (January 1, 20X5) precedes the grant date (January 1, 20X6). Compensation cost would be recognized during 20X5 in accordance with paragraph [718-10-55-112](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-112).

##### [718-10-55-115](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-115)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:b1d8e0308bca9b5d6750116f74f0b131cb1b7f972209dbf5dbc4999c569e7cf3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In contrast, consider an award that is given on January 1, 20X5, with only a three-year cliff vesting explicit service condition, which commences on that date. The exercise price will be set on January 1, 20X6. In this Example, the service inception date cannot precede the grant date because there is a substantive future requisite service condition that exists at the grant date (two years of service). Therefore, there would be no attribution of compensation cost for the period between January 1, 20X5, and December 31, 20X5, neither during that period nor cumulatively on January 1, 20X6, when both the service inception date and the grant date occur. This is consistent with the definition of requisite service period, which states that if an award requires future service for vesting, the entity cannot define a prior period as the requisite service period. The requisite service period would be two years, commencing on January 1, 20X6.

##### [718-10-55-116](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-116)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:72f922d40c26efb4855441227e02a540cfafc8c9d2b969cd2d503449dd49ae06

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


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).") is an award with two or more components in which exercise of one part cancels the other(s). In contrast, a [combination award](https://asc.understandingaccounting.org/glossary/c/#combination-award "An award with two or more separate components, each of which can be separately exercised. Each component of the award is actually a separate award, and compensation cost is measured and recognized for each component.") is an award with two or more separate components, all of which can be exercised. The following Cases illustrates one aspect of the guidance in paragraph [718-10-25-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-15):

1.  a
    
    Share option or cash settled stock appreciation rights (Case A)
    
2.  b
    
    Phantom shares or share options (Case B).

##### [718-10-55-116A](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-116A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:7bc46ec3d9f96872f6ccc3daf8dd84f2eb04f4f2000f72be235f57f06fb14773

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Cases A and B of this Example (see paragraphs

[718-10-55-117 through 55-130](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-117)

) describe employee awards. However, the principles on accounting for employee awards, except for compensation cost attribution, are the same for nonemployee awards. Therefore, the guidance in these Cases may serve as implementation guidance for nonemployee awards.

##### [718-10-55-116B](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-116B)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:fd45a7341db0caef72f4f251f15566977d2e0d13492c667d1638dd9e66855e00

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Compensation cost attribution for awards to nonemployees may be the same as or different from the attribution for the employee awards in Case A (see paragraph [718-10-55-119](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-119)) and Case B (see paragraph [718-10-55-130](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-130)). That is because an entity is required to recognize compensation cost for nonemployee awards in the same manner as if the entity had paid cash in accordance with paragraph [718-10-25-2C](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2C). Additionally, valuation amounts used in the Cases could be different because an entity may elect to use the contractual term as the expected term of share options and similar instruments when valuing nonemployee share-based transactions.

##### [718-10-55-117](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-117)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:bb7ff91a132cfb4a2244b81448b84e46440dae8da21712df467c15e2f78f90a7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Case illustrates the accounting for a tandem award in which employees have a choice of either share options or cash-settled stock appreciation rights. Entity T grants to its employees an award of 900,000 share options or 900,000 cash-settled stock appreciation rights on January 1, 20X5. The award vests on December 31, 20X7, and has a contractual life of 10 years. If an employee exercises the stock appreciation rights, the related share options are cancelled. Conversely, if an employee exercises the share options, the related stock appreciation rights are cancelled.

##### [718-10-55-118](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-118)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:7db7e3a8c1c3a5ccdea3fca184be5645a26c9462b4d40fa76dfc6893b61d155e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The tandem award results in Entity T's incurring a liability because the employees can demand settlement in cash. If Entity T could choose whether to settle the award in cash or by issuing stock, the award would be an equity instrument unless Entity T's predominant past practice is to settle most awards in cash or to settle awards in cash whenever requested to do so by the employee, indicating that Entity T has incurred a substantive liability as indicated in paragraph [718-10-25-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-15). In this Case, however, Entity T incurs a liability to pay cash, which it will recognize over the requisite service period. The amount of the liability will be adjusted each year to reflect changes in its fair value. If employees choose to exercise the share options rather than the stock appreciation rights, the liability is settled by issuing stock.

##### [718-10-55-119](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-119)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4ee1a797796979be166d35e0428a2174d00cbdad6464bd367e96203a9f8a05da

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The fair value of the stock appreciation rights at the grant date is $12,066,454, as computed in Example 1 (see paragraph [718-30-55-1](https://asc.understandingaccounting.org/asc/718/30/#718-30-55-1)), because the value of the stock appreciation rights and the value of the share options are equal. Accordingly, at the end of 20X5, when the assumed fair value per stock appreciation right is $10, the amount of the liability is $8,214,060 (821,406 cash-settled stock appreciation rights expected to vest × $10). One-third of that amount, $2,738,020, is recognized as compensation cost for 20X5. At the end of each year during the vesting period, the liability is remeasured to its fair value for all stock appreciation rights expected to vest. After the vesting period, the liability for all outstanding vested awards is remeasured through the date of settlement.

##### [718-10-55-120](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-120)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:c3cb99649f9ce417ead062246c1bd0c1986ba95686238563aa853f15d3bd3418

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Case illustrates a tandem award in which the components have different values after the grant date, depending on movements in the price of the entity's stock. The employee's choice of which component to exercise will depend on the relative values of the components when the award is exercised.

##### [718-10-55-121](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-121)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:158727c7128f8c4eb6dd64b43431865c9245621e4aeae2048789ce4bb550c43c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity T grants to its chief executive officer an immediately vested award consisting of the following two parts:

1.  a
    
    1,000 phantom share units (units) whose value is always equal to the value of 1,000 shares of Entity T's common stock
    
2.  b
    
    Share options on 3,000 shares of Entity T's stock with an exercise price of $30 per share.

##### [718-10-55-122](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-122)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:23f690f91ba7c73bb9f42ffafa4936823401d2066ec54d123bc0bacbf1b21e88

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


At the grant date, Entity T's share price is $30 per share. The chief executive officer may choose whether to exercise the share options or to cash in the units at any time during the next five years. Exercise of all of the share options cancels all of the units, and cashing in all of the units cancels all of the share options. The cash value of the units will be paid to the chief executive officer at the end of five years if the share option component of the tandem award is not exercised before then.

##### [718-10-55-123](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-123)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:bc918d0ed65836cc0b4ba3cf23dadaa6994dcf7b104c6f6560d25db2c3e1c55e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


With a 3-to-1 ratio of share options to units, exercise of 3 share options will produce a higher gain than receipt of cash equal to the value of 1 share of stock if the share price appreciates from the grant date by more than 50 percent. Below that point, one unit is more valuable than the gain on three share options. To illustrate that relationship, the results if the share price increases 50 percent to $45 are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-EEFDE090-F459-416F-8C83-5CE53F1084C5-low.gif)
    
    Units Exercise of Options Market value " $45,000 " "($45 × 1,000)" " $135,000 " " ($45 × 3,000)" Purchase price - " 90,000 " " ($30 × 3,000)" Net cash value " $45,000 " " $45,000 "

##### [718-10-55-124](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-124)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:f69f5e936dcd3b7bdf3eb08acd9ce5a601dd5af53c3fe4e7114655fed1ba0d1d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the price of Entity T's common stock increases to $45 per share from its price of $30 at the grant date, each part of the tandem grant will produce the same net cash payment (ignoring transaction costs) to the chief executive officer. If the price increases to $44, the value of 1 share of stock exceeds the gain on exercising 3 share options, which would be $42 \[3 × ($44-$30)\]. But if the price increases to $46, the gain on exercising 3 share options, $48 \[3 × ($46-$30)\], exceeds the value of 1 share of stock.

##### [718-10-55-125](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-125)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:53e80fe5fbe97833854aabb808fe48563b8ddab11880132657b9710eeffee504

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


At the grant date, the chief executive officer could take $30,000 cash for the units and forfeit the share options. Therefore, the total value of the award at the grant date must exceed $30,000 because at share prices above $45, the chief executive officer receives a higher amount than would the holder of 1 share of stock. To exercise the 3,000 options, the chief executive officer must forfeit the equivalent of 1,000 shares of stock, in addition to paying the total exercise price of $90,000 (3,000 × $30). In effect, the chief executive officer receives only 2,000 shares of Entity T stock upon exercise. That is the same as if the share option component of the tandem award consisted of share options to purchase 2,000 shares of stock for $45 per share.

##### [718-10-55-126](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-126)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:74c1f2c38d83f681e06f92686599749d709988e652adf29ffeec5502ecdbcda6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The cash payment obligation associated with the units qualifies the award as a liability of Entity T. The maximum amount of that liability, which is indexed to the price of Entity T's common stock, is $45,000 because at share prices above $45, the chief executive officer will exercise the share options.

##### [718-10-55-127](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-127)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:fa76d4ae8de7cfeca3d42374c80f292614cc4a87f03e70bbe7a6ca1f2c3d009d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In measuring compensation cost, the award may be thought of as a combination —not tandem—grant of both of the following:

1.  a
    
    1,000 units with a value at grant of $30,000
    
2.  b
    
    2,000 options with a strike price of $45 per share.

##### [718-10-55-128](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-128)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:e58f2eec2a080ead568dbc7075a970cf8037a12c2ce9e3398db1f71378b66d1e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Compensation cost is measured based on the combined value of the two parts.

##### [718-10-55-129](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-129)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:2a990848a6bbab5871fceab6fa9d28f3ca7ba18a9efa1e2d89d2c94e80f7d80b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The fair value per share option with an exercise price of $45 is assumed to be $10. Therefore, the total value of the award at the grant date is as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-404C0824-13F0-4124-973B-EAF6991A370F-low.gif)
    
    "Units (1,000 × $30)" " $30,000 " "Share options (2,000 × $10)" " 20,000 " Value of award " $50,000 "

##### [718-10-55-130](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-130)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:a3a97559569e7a158f15f0f2032f04b0ac7cf7d3342c4d024c3677b5e5da4b5a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Therefore, compensation cost recognized at the date of grant (the award is immediately vested) would be $30,000 with a corresponding credit to a share-based compensation liability of $30,000. However, because the share option component is the substantive equivalent of 2,000 deep out-of-the-money options, it contains a derived service period (assumed to be 2 years). Hence, compensation cost for the share option component of $20,000 would be recognized over the requisite service period. The share option component would not be remeasured because it is not a liability. That total amount of both components (or $50,000) is more than either of the components by itself, but less than the total amount if both components (1,000 units and 3,000 share options with an exercise price of $30) were exercisable. Because granting the units creates a liability, changes in the liability that result from increases or decreases in the price of Entity T's share price would be recognized each period until exercise, except that the amount of the liability would not exceed $45,000.

##### [718-10-55-131](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-131)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:0ecb83b2c8db9ec8cbf36db546c3bb55c339c8950e08de0c612551b0120df54d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A nonpublic entity that is not a Securities and Exchange Commission (SEC) registrant has two classes of stock. Class A is voting and held only by the members of the founding family, and Class B (book value shares) is nonvoting and held only by employees. The purchase price of Class B shares is a formula price based on book value. Class B shares require that the employee, six months after retirement or separation from the entity, sell the shares back to the entity for cash at a price determined by using the same formula used to establish the purchase price. Class B shares may not be required to be accounted for as liabilities pursuant to Topic 480 because the entity is a nonpublic entity that is not an SEC registrant. Nevertheless, Class B shares may be classified as liabilities if they are granted as part of a share-based payment transaction and those shares contain certain repurchase features meeting criteria in paragraph [718-10-25-9](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-9); this Example assumes that Class B shares do not meet those criteria. Because book value shares of public entities generally are not indexed to their stock prices, such shares would be classified as liabilities pursuant to this Topic.

##### [718-10-55-132](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-132)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:5036a4ec1b369a7838e83937a200bea26d4501ab325255adae5bee770abde5d0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Determining whether a transaction involving Class B shares is compensatory will depend on the terms of the arrangement. For instance, if an employee acquires 100 shares of Class B stock in exchange for cash equal to the formula price of those shares, the transaction is not compensatory because the employee has acquired those shares on the same terms available to all other Class B shareholders and at the current formula price based on the current book value. Subsequent changes in the formula price of those shares held by the employee are not deemed compensation for services.

##### [718-10-55-133](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-133)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:4fe46ad638a4f3afba0fe3dc7f89fd5b8318c15f51b0a07e2f9e2d17cb211d10

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


However, if an employee acquires 100 shares of Class B stock in exchange for cash equal to 50 percent of the formula price of those shares, the transaction is compensatory because the employee is not paying the current formula price. Therefore, the value of the 50 percent discount should be attributed over the requisite service period. However, subsequent changes in the formula price of those shares held by the employee are not compensatory.

##### [718-10-55-134](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-134)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:cc8f604c1012cb2038ed937002989176b3493f1f95d529a9dcfc9694609247cd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates disclosures (see paragraphs

[718-10-50-1 through 50-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1)

) of a public entity's share-based compensation arrangements. The illustration assumes that compensation cost has been recognized in accordance with this Topic for several years. The amount of compensation cost recognized each year includes both costs from that year's grants and costs from prior years' grants. The number of options outstanding, exercised, forfeited, or expired each year includes options granted in prior years. Although this Example focuses on employee share-based payment plans, the disclosures are equally applicable to share-based payment awards issued to nonemployees. An entity should refer to the guidance in paragraph [718-10-50-2(g)](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2) when evaluating whether separate disclosure of nonemployee share-based payment awards is warranted.

##### [718-10-55-135](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-135)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:fe66a55717876ed02b00c6c7396f7cc30717bcca47a940a229e1b318c165bef4

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


On December 31, 20Y1, the Entity has two share-based compensation plans: The compensation cost that has been charged against income for those plans was $29.4 million, $28.7 million, and $23.3 million for 20Y1, 20Y0, and 20X9, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $10.3 million, $10.1 million, and $8.2 million for 20Y1, 20Y0, and 20X9, respectively. Compensation cost capitalized as part of inventory and fixed assets for 20Y1, 20Y0, and 20X9 was $0.5 million, $0.2 million, and $0.4 million, respectively.

##### [718-10-55-136](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-136)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:ce39f12c47e713e5f36a4a2f8784150c3f735204e0c08c7bd49e26dad9be3a50

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following illustrates disclosure for a share option plan.

-   The Entity's 20X4 employee share option plan, which is shareholder-approved, permits the grant of share options and shares to its employees for up to 8 million shares of common stock. Entity A believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of Entity A's stock at the date of grant; those option awards generally vest based on 5 years of continuous service and have 10-year contractual terms. Share awards generally vest over five years. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the employee share option plan).
    
-   The fair value of each option award is estimated on the date of grant using a lattice-based option valuation model that uses the assumptions noted in the following table. Because lattice-based option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on implied volatilities from traded options on Entity A's stock, historical volatility of Entity A's stock, and other factors. Entity A uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-57931370-5913-4498-ADDA-672B3CBBF0EF-low.gif)
        
        20Y1 20Y0 20X9 Expected volatility 25%-40% 24%-38% 20%-30% Weighted-average volatility 33% 30% 27% Expected dividends 1.5% 1.5% 1.5% Expected term (in years) 5.3-7.8 5.5-8.0 5.6-8.2 Risk-free rate 6.3%-11.2% 6.0%-10.0% 5.5%-9.0%
        
-   A summary of option activity under the employee share option plan as of December 31, 20Y1, and changes during the year then ended is presented below.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-68329FCF-C045-4CFC-A06D-8B848A5BD25B-low.gif)
        
        Options Shares (000) Weighted- Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value ($000) "Outstanding at January 1, 20Y1" " 4,660 " $42 Granted 950 60 Exercised (800) 36 Forfeited or expired (80) 59 "Outstanding at December 31, 20Y1" " 4,730 " $47 6.5 " $85,140 " "Exercisable at December 31, 20Y1" " 3,159 " $41 4.0 " $75,816 "
        
-   The weighted-average grant-date fair value of options granted during the years 20Y1, 20Y0, and 20X9 was $19.57, $17.46, and $15.90, respectively. The total intrinsic value of options exercised during the years ended December 31, 20Y1, 20Y0, and 20X9, was $25.2 million, $20.9 million, and $18.1 million, respectively.
    
-   A summary of the status of Entity A's nonvested shares as of December 31, 20Y1, and changes during the year ended December 31, 20Y1, is presented below.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-2BAC01FE-888E-4BD9-A71C-442FE954D512-low.gif)
        
        Nonvested Shares Shares (000) "Weighted-Average Grant-Date Fair Value" "Nonvested at January 1, 20Y1" 980 $40.00 Granted 150 63.50 Vested (100) 35.75 Forfeited (40) 55.25 "Nonvested at December 31, 20Y1" 990 $43.35
        
-   As of December 31, 20Y1, there was $25.9 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the employee share option plan. That cost is expected to be recognized over a weighted-average period of 4.9 years. The total fair value of shares vested during the years ended December 31, 20Y1, 20Y0, and 20X9, was $22.8 million, $21 million, and $20.7 million, respectively.
    
-   During 20Y1, Entity A extended the contractual life of 200,000 fully vested share options held by 10 employees. As a result of that modification, the Entity recognized additional compensation expense of $1.0 million for the year ended December 31, 20Y1.

##### [718-10-55-137](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-137)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:ff7123d791f9aa36ebbcc08c66d1871ae76632e70f05b4ed7c672a360c167410

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following illustrates disclosure for a performance share option plan.

-   Under its 20X7 performance share option plan, which is shareholder-approved, each January 1 Entity A grants selected executives and other key employees share option awards whose vesting is contingent upon meeting various departmental and company-wide performance goals, including decreasing time to market for new products, revenue growth in excess of an index of competitors' revenue growth, and sales targets for Segment X. Share options under the performance share option plan are generally granted at-the-money, contingently vest over a period of 1 to 5 years, depending on the nature of the performance goal, and have contractual lives of 7 to 10 years. The number of shares subject to options available for issuance under this plan cannot exceed 5 million.
    
-   The fair value of each option grant under the performance share option plan was estimated on the date of grant using the same option valuation model used for options granted under the employee share option plan and assumes that performance goals will be achieved. If such goals are not met, no compensation cost is recognized and any recognized compensation cost is reversed. The inputs for expected volatility, expected dividends, and risk-free rate used in estimating those options' fair value are the same as those noted in the table related to options issued under the employee share option plan. The expected term for options granted under the performance share option plan in 20Y1, 20Y0, and 20X9 is 3.3 to 5.4 years, 2.4 to 6.5 years, and 2.5 to 5.3 years, respectively.
    
-   A summary of the activity under the performance share option plan as of December 31, 20Y1, and changes during the year then ended is presented below.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-E7DCBC25-CE99-4A36-868A-190D098490BD-low.gif)
        
        Performance Options Shares (000) Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value ($000) "Outstanding at January 1, 20Y1" "2,533 " $44 Granted 995 60 Exercised (100) 36 Forfeited (604) 59 "Outstanding at December 31, 20Y1" "2,824 " $47 7.1 " $50,832 " "Exercisable at December 31, 20Y1" 936 $40 5.3 " $23,400 "
        
-   The weighted-average grant-date fair value of options granted during the years 20Y1, 20Y0, and 20X9 was $17.32, $16.05, and $14.25, respectively. The total intrinsic value of options exercised during the years ended December 31, 20Y1, 20Y0, and 20X9, was $5 million, $8 million, and $3 million, respectively. As of December 31, 20Y1, there was $16.9 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the performance share option plan; that cost is expected to be recognized over a period of 4 years.
    
-   Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 20Y1, 20Y0, and 20X9, was $32.4 million, $28.9 million, and $18.9 million, respectively. The actual tax benefit for the tax deductions from option exercise of the share-based payment arrangements totaled $11.3 million, $10.1 million, and $6.6 million, respectively, for the years ended December 31, 20Y1, 20Y0, and 20X9.
    
-   Entity A has a policy of repurchasing shares on the open market to satisfy share option exercises and expects to repurchase approximately 1 million shares during 20Y2, based on estimates of option exercises for that period.

##### [718-10-55-138](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-138)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:cca5ee6468a83edac5917d4e1dd2d4cacf70b46caeb89b56b1f2c2fea6db57c3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)This Example illustrates how an entity should apply the guidance in paragraph [718-10-15-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) to determine whether a profits interest or similar award is a share-based payment arrangement and is within the scope of this Topic or is not a share-based payment arrangement and, therefore, is within the scope of other Topics. The guidance in this Example is limited to the application of paragraph [718-10-15-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) and does not address how to apply other Sections of this Topic, including recognition, classification, initial measurement, subsequent measurement, other presentation matters, and disclosure.

##### [718-10-55-139](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-139)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:119ffafa00b6f8bfbe65839859d302d244a94b9f06263ddae80cb4c1a0a03b23

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)Cases A, B, C, and D share the following assumptions:

1.  a
    
    Entity X is a partnership. Before June 1, 20X1, Entity X had Class A units outstanding. On June 1, 20X1, Entity X grants Class B incentive units to employees of a subsidiary of Entity X in exchange for services.
    
2.  b
    
    An exit event may include an initial public offering, a change in control, or a liquidation of Entity X's assets.

##### [718-10-55-140](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-140)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:3c23d7c6b456b176625b2e1dac5621b98d715035cb8360d058bd7d0a08f650e9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)Additional assumptions are as follows:

1.  a
    
    The Class B units are profits interest units that are subordinated to the Class A units because after vesting they participate pro rata with the Class A units once the holders of the Class A units have received distributions equal to a predetermined distribution threshold established on the grant date of the Class B units.
    
2.  b
    
    The Class B units cliff vest at the end of three years of service.
    
3.  c
    
    Upon an exit event, the Class B units vest immediately if a grantee is still providing services to the subsidiary of Entity X. Upon such an event, the grantee would retain the vested Class B units, or if Class B units are settled through the exit event, Entity X would distribute proceeds to the Class B unit holders in the same manner as is described in (a).
    
4.  d
    
    If a grantee of the Class B units terminates employment with the subsidiary of Entity X (whether voluntarily, upon death, disability, or retirement or at the election of Entity X for reasons other than cause), any unvested Class B units will be forfeited for no consideration. If a grantee of the Class B units terminates employment after vesting, the grantee retains ownership of the vested Class B units, but upon the grantee’s termination of employment, Entity X has a call right to repurchase the Class B units. If the call right is exercised, Entity X would pay the grantee of the Class B units an amount of cash equal to the fair value of the Class B units on the call date.

##### [718-10-55-141](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-141)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:f4b90f726ff6acd220c7cb5fae2969071434b601bc32dee581f4196273fcf054

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)Entity X evaluates the conditions in paragraph [718-10-15-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) to determine whether to account for the Class B units by applying the guidance in this Topic. The Class B units meet the condition in paragraph [718-10-15-3(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) because both of the following indicate that Entity X is offering to issue shares or other equity instruments:

1.  a
    
    Either upon three years of service or an exit event, the grantor will have received the agreed-upon consideration (that is, the service will have been provided and the performance condition will have been met, if applicable) and the award will vest.
    
2.  b
    
    Holding the vested Class B units provides the grantee with the right to participate in the residual interest of Entity X through periodic distributions, upon an exit event, or upon settlement proportionate to ownership of Class B units of Entity X in accordance with the distribution waterfall described in paragraph [718-10-55-140(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-140).
    

Therefore, Entity X would account for the Class B units by applying the guidance in this Topic.

##### [718-10-55-142](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-142)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:143f89adaa8692e369fe35202b2f3c17454757b81674d08f48ffd2c1351d5b73

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)Additional assumptions are as follows:

1.  a
    
    The Class B units are profits interest units that are subordinated to the Class A units because once granted, they participate pro rata with the Class A units once the holders of the Class A units have received distributions equal to a predetermined distribution threshold established on the grant date of the Class B units.
    
2.  b
    
    The grantee of the Class B units is eligible to begin participating in nonforfeitable operating distributions at the grant date.
    
3.  c
    
    The Class B units only vest upon an exit event. Upon such an event, the grantee would retain the vested Class B units, or if Class B units are settled through the exit event, Entity X would distribute proceeds to the Class B unit holders in the same manner as is described in (a). Class B units are forfeitable upon the grantee’s termination for any reason at any time before an exit event.

##### [718-10-55-143](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-143)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:3e8948fa8943ca63395c5a2175ba54f374be816623faa1640cc07dcf8eced4fb

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)Entity X evaluates the conditions in paragraph [718-10-15-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) to determine whether to account for the Class B units by applying the guidance in this Topic. The Class B units meet the condition in paragraph [718-10-15-3(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) because both of the following indicate that Entity X is offering to issue shares or other equity instruments:

1.  a
    
    Upon an exit event, the grantor will have received the agreed-upon consideration (that is, the service will have been provided and the performance condition will have been met) and the award will vest.
    
2.  b
    
    Holding the vested Class B units provides the grantee with the right to participate in the residual interest of Entity X through periodic distributions, upon an exit event, or upon settlement proportionate to ownership of Class B units of Entity X in accordance with the distribution waterfall described in paragraph [718-10-55-142(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-142).
    

Therefore, Entity X would account for the Class B units by applying the guidance in this Topic.

##### [718-10-55-144](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-144)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:5f40984970e01e86205f64d05ad3c419e5a588198f7d77570dcb53a0cf503639

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)The grantee of the Class B units is not entitled to retain the units if the grantee ceases to provide services before an exit event. Upon termination of employment before an exit event, the grantee of the Class B units would forfeit all rights to future distributions and would forfeit Class B units for no consideration. Entity X would account for the grantee’s right to participate in nonforfeitable operating distributions in accordance with paragraph [718-10-55-45](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-45).

##### [718-10-55-145](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-145)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:7bdd1a6c420b2a2ec7aea0e148648f7f58a617a1d468ef7fb4ab2ec59c11bebc

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)Additional assumptions are as follows:

1.  a
    
    The Class B units do not entitle the grantee to receive equity instruments of Entity X. This type of unit is often referred to as a phantom share unit.
    
2.  b
    
    The grantee of the Class B units is not eligible to participate in distributions in the ordinary course of business.
    
3.  c
    
    The grantee of the Class B units is eligible to receive cash upon an exit event. Upon an exit event, the Class B units vest immediately and must be settled in cash on the basis of the fair value of the Class B units. The fair value of the Class B units is calculated by reference to the price of Class A units of Entity X as determined at the date of the exit event.
    
4.  d
    
    The grantee of the Class B units must be providing services when the exit event occurs to receive any proceeds, and the Class B units are forfeitable upon the grantee’s termination for any reason at any time before an exit event.

##### [718-10-55-146](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-146)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:948c819f8ab7758c82a1d4f4d9452be48698e756139850a5e8985d2d2cbf1a24

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)Entity X evaluates the conditions in paragraph [718-10-15-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) to determine whether to account for the Class B units by applying the guidance in this Topic. The Class B units do not meet the condition in paragraph [718-10-15-3(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) because they do not entitle the grantee to receive shares or other equity instruments of Entity X; therefore, Entity X is not issuing, or offering to issue, shares, share options, or other equity instruments. However, the condition in paragraph [718-10-15-3(b)(1)](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) is met because the cash proceeds received by the grantee upon settlement in an exit event are based, at least in part, on the price of Entity X’s shares. Therefore, Entity X would account for the Class B units by applying the guidance in this Topic.

##### [718-10-55-147](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-147)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:1086e08bb223543744277119f28582257a3cb2ac76f19e26944a05df23b7e413

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)Additional assumptions are as follows:

1.  a
    
    The Class B units do not entitle the grantee to receive equity instruments of Entity X. This type of unit is often referred to as a phantom share unit.
    
2.  b
    
    The grantee of the Class B units is eligible to participate in operating distributions made by Entity X equal to 1 percent of the preceding fiscal year’s net income. The grantee of the Class B units is eligible to begin participating in these operating distributions after three years of service.
    
3.  c
    
    The grantee of the Class B units is not eligible to participate in any proceeds distributed upon an exit event.
    
4.  d
    
    The Class B units are forfeitable upon the grantee’s termination for any reason at any time (including after the grantee has rendered three years of service).

##### [718-10-55-148](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-148)

Pending content: yes

Source downloaded (UTC): 2026-09-10T01:03:50.265Z to 2026-09-10T01:03:50.265Z

Record version: sha256:2df362ae8c7aef6c71cbcd58f670740351bb7629fc7ed0d59d58a389af46154f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:

[718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)Entity X evaluates the conditions in paragraph [718-10-15-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) to determine whether to account for the Class B units by applying the guidance in this Topic. The Class B units do not meet the condition in paragraph [718-10-15-3(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) because they do not entitle the grantee to receive shares or other equity instruments of Entity X; therefore, Entity X is not issuing or offering to issue shares, share options, or other equity instruments. In addition, the condition in paragraph [718-10-15-3(b)(1)](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) is not met because the proceeds received by the grantee related to operating distributions are based on an operating metric (1 percent of the preceding fiscal year’s net income) of Entity X and are not based, at least in part, on the price of Entity X’s shares. Furthermore, the condition in paragraph [718-10-15-3(b)(2)](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-3) is not met because there is no circumstance in which Entity X would be required to issue its equity shares or other equity instruments. Therefore, Entity X would not apply the guidance in this Topic to account for the Class B units and, instead, would account for the Class B units in accordance with other Topics.

Source downloaded (UTC): 2026-09-10T01:03:53.720Z to 2026-09-10T01:03:53.720Z

Record version: sha256:41da4fe61bea9c451631496f9a41bda5dfa5c8ed39d3406999b22053ce207f33

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-60: 60 Relationships

[Read section](https://asc.understandingaccounting.org/asc/718/10/#60-relationships)

SEC content: no

#### Equity

##### [718-10-60-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-60-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:53.720Z to 2026-09-10T01:03:53.720Z

Record version: sha256:25c39d97add8e8362d080a7bcadb58420b687cc3788bc5bbbb3abc5f27204239

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For guidance related to an investor providing stock compensation on behalf of an investee, see paragraph [505-10-25-3](https://asc.understandingaccounting.org/asc/505/10/#505-10-25-3) for investee accounting.

#### Business Combinations

##### [718-10-60-1A](https://asc.understandingaccounting.org/asc/718/10/#718-10-60-1A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:53.720Z to 2026-09-10T01:03:53.720Z

Record version: sha256:942fcf6af3af7fb3fe59494473e7b84c54b656904adacda00de242d930a36a06

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For guidance on accounting for contractual termination benefits and curtailment losses under employee benefit plans that will be triggered by the consummation of a business combination, see paragraphs

[805-20-55-50 through 55-51](https://asc.understandingaccounting.org/asc/805/20/#805-20-55-50)

.

#### Derivatives and Hedging

##### [718-10-60-1B](https://asc.understandingaccounting.org/asc/718/10/#718-10-60-1B)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:53.720Z to 2026-09-10T01:03:53.720Z

Record version: sha256:33e8b2cd908687769d870bc84ae5e985538317d483ef147db42a95a77f4e43a1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For guidance related to equity-linked financial instruments issued to investors for purposes of establishing a market-based measure of the grant-date fair value of stock options granted in share-based payment transactions, see paragraph [815-40-15-5A](https://asc.understandingaccounting.org/asc/815/40/#815-40-15-5A).

##### [718-10-60-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-60-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:53.720Z to 2026-09-10T01:03:53.720Z

Record version: sha256:8e4927f6a3ecb6bc9db0c0da4a2479e005b37e5efdaf2558926f7ce4551046bf

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For guidance related to stock options in an unrelated entity granted in a share-based payment transaction, see paragraphs

[815-10-55-46 through 55-48](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-46)

.

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:fe60a2e7e36c62964201d8d6d5e8ec65f90209338b372780569118db751eaabe

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-65: 65 Transition and Open Effective Date Information

[Read section](https://asc.understandingaccounting.org/asc/718/10/#65-transition-and-open-effective-date-information)

SEC content: no

##### [718-10-65-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:1d5b07f5af1883c4e2545121830ccda9267b4cb5acdebabd3f5d2dad60d103ae

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 03/30/2016 by Accounting Standards Update No. 2016-09, _Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting_.

##### [718-10-65-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:0f0e456eaa69934dd9c449d5512227e46f62465d45e5f21ee946d299dac077a0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 06/18/2012 after the end of the transition period stated in Accounting Standards Update No. 2010-13, _Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades_.

##### [718-10-65-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:4b10c82b7fb2251ae8d2c79ee1b3d74b09f9e7c408e8a8f9ee698e923fa988b3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/05/2017 after the end of the transition period stated in Accounting Standards Update No. 2014-12, _Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period_.

##### [718-10-65-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:59e4949da2a26fd9a5351ad03a7a09efc3c91ffd34e7f87e2ccdbc5547d65eda

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/17/2019 after the end of the transition period stated in Accounting Standards Update No. 2016-09, _Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting_.

##### [718-10-65-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:2586f3ee52d4ba79c7e59d9c06368315b79e8d3b4013940093f529c39be350e8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/17/2019 after the end of the transition period stated in Accounting Standards Update No. 2016-09, _Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting_.

##### [718-10-65-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-6)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:b160ceb668e5cec836c8a1aa6bad492c398a88c11ee2cd512817f86171a57592

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/17/2019 after the end of the transition period stated in Accounting Standards Update No. 2016-09, _Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting_.

##### [718-10-65-7](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-7)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:57d841c0502bb8c415decd815a6fb609ecde8f270fa09a9ec419532212225b34

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/17/2019 after the end of the transition period stated in Accounting Standards Update No. 2016-09, _Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting_.

##### [718-10-65-8](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-8)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:611797229478ed43e06bb9cbee35dc361404a47e172e962ec20a15fea53d0009

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/17/2019 after the end of the transition period stated in Accounting Standards Update No. 2016-09, _Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting_.

##### [718-10-65-9](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-9)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:339993f1c574737f75cdf6f297474c716c437aabb55cd8788063e4ce9e58b85b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/17/2019 after the end of the transition period stated in Accounting Standards Update No. 2016-09, _Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting_.

##### [718-10-65-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-10)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:ce5acaacd551d1c14db697b1fb03517240993ef4b3fbcd31c7552c543bb0bfd6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/17/2019 after the end of the transition period stated in Accounting Standards Update No. 2016-09, _Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting_.

##### [718-10-65-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-11)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:3fc85b1f69818d62a2b3885d516f5f6ce6286cdc4bcd5b0fb0f4cb839e7de4eb

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 08/19/2021 after the end of the transition period stated in Accounting Standards Update No. 2018-07, _Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting_.

##### [718-10-65-12](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-12)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:cfd177f1627124e6d6975e407c99246fbb88385d00390f3a8abc01a4af435f7f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 08/19/2021 after the end of the transition period stated in Accounting Standards Update No. 2018-07, _Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting_.

##### [718-10-65-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-13)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:f8e26778c651f82c7aa31ee8e2ff67609192eb52ba7b180622ee0298ce8478cc

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 08/19/2021 after the end of the transition period stated in Accounting Standards Update No. 2018-07, _Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting_.

##### [718-10-65-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-14)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:46cdd4f2591e56d4d32dd28e08cfb4fd88735d258fd1a0af77ad6aa09170b951

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 08/19/2021 after the end of the transition period stated in Accounting Standards Update No. 2018-07, _Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting_.

##### [718-10-65-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-15)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:68e89d0f54e41dda403f39ab03acfe2cee2e1d22bb5371f06902288a2fd71fcd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 08/19/2021 after the end of the transition period stated in Accounting Standards Update No. 2019-08, _Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer._

##### [718-10-65-16](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-16)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:dfafe241b1d37430cfffcfbed921410fc5b364f5588e883ad63f36723f3371e0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/10/2023 after the end of the transition period stated in Accounting Standards Update No. 2021-07, _Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards_.

#### Transition Related to Accounting Standards Update No. 2024-01, <em class="ph i">Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards</em>

##### [718-10-65-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-65-17)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:03:55.768Z to 2026-09-10T01:03:55.768Z

Record version: sha256:4ece4b8a0a75ee0eeed207c35e304d965e251787717299375aacb73e8cfaafe9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Accounting Standards Update 2024-01](https://asc.understandingaccounting.org/updates/asu-2024-01/)

2027-06-14

2024-12-16

2024-12-16

2024-12-16

2024-12-16

2025-12-16

2025-12-16

2025-12-16

2025-12-16

2025-12-16

2025-12-16

2025-12-16

2025-12-16

2025-12-16

2025-12-16

The following represents the transition and effective date information related to Accounting Standards Update No. 2024-01, _Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards:_

1.  a
    
    The pending content that links to this paragraph shall be effective for [public business entities](https://asc.understandingaccounting.org/glossary/p/#public-business-entity "A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.") for annual periods beginning after December 15, 2024, and interim periods within those annual periods.
    
2.  b
    
    For entities other than public business entities, the pending content that links to this paragraph shall be effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods.
    
3.  c
    
    Early adoption of the pending content that links to this paragraph is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. If an entity adopts the pending content that links to this paragraph in an interim period, it shall adopt the pending content as of the beginning of the annual period that includes that interim period.
    
4.  d
    
    An entity shall apply the pending content that links to this paragraph either:
    
    1.  1
        
        Retrospectively to all prior periods presented in the financial statements in accordance with paragraphs
        
        [250-10-45-5 through 45-8](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-5)
        
        . An entity that selects retrospective application shall provide the disclosures in paragraphs
        
        [250-10-50-1 through 50-3](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-1)
        
        in the period of adoption.
        
    2.  2
        
        Prospectively to profits interest or similar awards granted or modified on or after the date at which the entity first applies the pending content that links to this paragraph with disclosure that describes the nature of and reason for the change in accounting principle.

Source downloaded (UTC): 2026-09-10T01:04:01.607Z to 2026-09-10T01:04:01.607Z

Record version: sha256:e5c7a5ba6190a0494e2f944611cc8602eacae2aeee3d78eabebbee736aea5e97

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-S00: SEC 00 Status

[Read section](https://asc.understandingaccounting.org/asc/718/10/#sec-00-status)

SEC content: yes

##### [718-10-S00-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S00-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:01.607Z to 2026-09-10T01:04:01.607Z

Record version: sha256:6f0f7e8f0e6fe0f68998f2340b3487785de55fee40735e32d811bdc1a0b66382

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following table identifies the changes made to this Subtopic.

<table class="asc-table" id="SL5867414-161498"><tbody><tr><td class="entry"><strong class="ph b">Paragraph</strong></td><td class="entry"><strong class="ph b">Action</strong></td><td class="entry"><strong class="ph b">Accounting Standards Update</strong></td><td class="entry"><strong class="ph b">Date</strong></td></tr><tr><td class="entry"></td><td class="entry"></td><td class="entry"></td><td class="entry"></td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-S25-1" class="xref">718-10-S25-1</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2010-05/" class="xref">Accounting Standards Update No. 2010-05</a></td><td class="entry">01/15/2010</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-S30-1" class="xref">718-10-S30-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2009-04/" class="xref">Accounting Standards Update No. 2009-04</a></td><td class="entry">08/26/2009</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-S45-2" class="xref">718-10-S45-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2009-04/" class="xref">Accounting Standards Update No. 2009-04</a></td><td class="entry">08/26/2009</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-S50-1" class="xref">718-10-S50-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2009-07/" class="xref">Accounting Standards Update No. 2009-07</a></td><td class="entry">09/15/2009</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1" class="xref">718-10-S99-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2023-03/" class="xref">Accounting Standards Update No. 2023-03</a></td><td class="entry">07/14/2023</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1" class="xref">718-10-S99-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2012-03/" class="xref">Accounting Standards Update No. 2012-03</a></td><td class="entry">08/27/2012</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1" class="xref">718-10-S99-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2009-07/" class="xref">Accounting Standards Update No. 2009-07</a></td><td class="entry">09/15/2009</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1" class="xref">718-10-S99-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2009-03/" class="xref">Accounting Standards Update No. 2009-03</a></td><td class="entry">08/24/2009</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-2" class="xref">718-10-S99-2</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2010-05/" class="xref">Accounting Standards Update No. 2010-05</a></td><td class="entry">01/15/2010</td></tr></tbody></table>

Source downloaded (UTC): 2026-09-10T01:04:03.436Z to 2026-09-10T01:04:03.436Z

Record version: sha256:754bbe38bcefd25e1a1ac16c3ddd7a5824e67cd3f78ed20e7ecab4baec5e221b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-S15: SEC 15 Scope and Scope Exceptions

[Read section](https://asc.understandingaccounting.org/asc/718/10/#sec-15-scope-and-scope-exceptions)

SEC content: yes

#### Applicability of Topic 718 to Share-Based Transactions with Nonemployees

##### [718-10-S15-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S15-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:03.436Z to 2026-09-10T01:04:03.436Z

Record version: sha256:e4041b8b940e1f9250f3d5957d8678b3609c215a463bb9926091195614596dd8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.A, for SEC Staff views regarding the applicability of Topic 718 to transactions with nonemployees.

Source downloaded (UTC): 2026-09-10T01:04:07.091Z to 2026-09-10T01:04:07.091Z

Record version: sha256:980a0465494d2fd1d1841aa04d60cf8149958d89da6c73de42168a6af4e582af

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-S25: SEC 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/718/10/#sec-25-recognition)

SEC content: yes

#### Escrowed Share Arrangements and the Presumption of Compensation

##### [718-10-S25-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S25-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:07.091Z to 2026-09-10T01:04:07.091Z

Record version: sha256:34c630eee1a68d2fb9288a736792304bb425dd1ebe5b05906f5a1055deb53053

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-2): SEC Staff Announcement: Escrowed Share Arrangements and the Presumption of Compensation, for SEC Staff views on the accounting for escrowed share arrangements.

Source downloaded (UTC): 2026-09-10T01:04:10.705Z to 2026-09-10T01:04:10.705Z

Record version: sha256:1c544e1b1720a1f17e46d02882cc7f7e2ee20fcf41d128a55ea0187283f54b60

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-S30: SEC 30 Initial Measurement

[Read section](https://asc.understandingaccounting.org/asc/718/10/#sec-30-initial-measurement)

SEC content: yes

#### Initial Carrying Amount of Certain Employee Share-Based Payment Arrangements with Redemption Provisions

##### [718-10-S30-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S30-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:10.705Z to 2026-09-10T01:04:10.705Z

Record version: sha256:91138244c47aad03ff4200efb312709e0ef3b4c45aa578cb11fe5b29ce7ffaed

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [480-10-S99-3A](https://asc.understandingaccounting.org/asc/480/10/#480-10-S99-3A), SEC Staff Announcement: Classification and Measurement of Redeemable Securities, for SEC Staff views on the accounting for options or similar instruments granted in conjunction with share-based payment arrangements with employees for which the terms may permit redemption of the option or underlying share.

Source downloaded (UTC): 2026-09-10T01:04:13.717Z to 2026-09-10T01:04:13.717Z

Record version: sha256:0ad33843ebe9ab7b145b9394d47b39340f055643cb39c35d3ee6df32633a6ad3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-S45: SEC 45 Other Presentation Matters

[Read section](https://asc.understandingaccounting.org/asc/718/10/#sec-45-other-presentation-matters)

SEC content: yes

#### Presentation of Compensation Expense Associated with Share-Based Payment Arrangements

##### [718-10-S45-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S45-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:13.717Z to 2026-09-10T01:04:13.717Z

Record version: sha256:e6b5db821ff9f9570c29bec7c97e58707d71729e1e2e62a16df9b2f53581824f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.F, for SEC Staff views on income statement presentation of the expense related to share-based payment arrangements.

#### Consideration of Redemption Features on Classification of Certain Employee Share-Based Payment Awards

##### [718-10-S45-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-S45-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:13.717Z to 2026-09-10T01:04:13.717Z

Record version: sha256:3161d0743a2c81a9e05a1968083557c23c1c48f2a05332197076b3ed6264a10e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [480-10-S99-3A](https://asc.understandingaccounting.org/asc/480/10/#480-10-S99-3A), SEC Staff Announcement: Classification and Measurement of Redeemable Securities, for SEC Staff views on classification of certain employee share-based payment awards with redemption features.

Source downloaded (UTC): 2026-09-10T01:04:17.437Z to 2026-09-10T01:04:17.437Z

Record version: sha256:ea55617323f9c4694f0439c16e547e910a6bd06e54866131f8f68779556d87da

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-S50: SEC 50 Disclosure

[Read section](https://asc.understandingaccounting.org/asc/718/10/#sec-50-disclosure)

SEC content: yes

#### Disclosures Upon Becoming a Public Entity

##### [718-10-S50-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S50-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:17.437Z to 2026-09-10T01:04:17.437Z

Record version: sha256:9c0d0d066b0b42ec462b4ed7382987295056d8a81e1507cd1f8394a0e51adc8f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.B, Question 4, for SEC Staff views on appropriate disclosures upon becoming a public entity in addition to those prescribed by paragraphs

[718-10-50-1 through 50-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1)

.

#### Changes in Valuation Technique or Model Used to Value Instruments

##### [718-10-S50-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-S50-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:17.437Z to 2026-09-10T01:04:17.437Z

Record version: sha256:39e3dbce53447e9b47a0ddbef598ec3bfb73938979d2a9bae1a2c344506e8fa9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.C, Question 3, for SEC Staff views on disclosures pertaining to a change in valuation technique or model used to value instruments.

#### Changes in Assumptions Used in Valuation Models

##### [718-10-S50-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-S50-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:17.437Z to 2026-09-10T01:04:17.437Z

Record version: sha256:c2f94a7fb95d33d227258ad9fbcf02084c0db7539e3e1584d48ac4515d74d5bf

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.D, for SEC Staff views on disclosures pertaining to changes in assumptions used in valuation models.

#### Expected Volatility Assumptions

##### [718-10-S50-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-S50-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:17.437Z to 2026-09-10T01:04:17.437Z

Record version: sha256:1b99fe27f269ae44ed590894350b66622987175184c70e986c7d8052beceacad

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.D.1, Question 5, for SEC Staff views on disclosures pertaining to an entity's assumption of expected volatility.

#### Expected Term

##### [718-10-S50-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-S50-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:17.437Z to 2026-09-10T01:04:17.437Z

Record version: sha256:329a740f95195515c3bcf2293f61f680e22657462a6a76660507415ec56d199e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.D.2, Question 6, for SEC Staff views on disclosures pertaining to an entity's assumption of expected term.

#### First Time Adoption of Topic 718 in an Interim Period

##### [718-10-S50-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-S50-6)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:17.437Z to 2026-09-10T01:04:17.437Z

Record version: sha256:a002c8a3306b267541188450711e24c999633fa718b2e045216039e9139af3bb

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.H, for SEC Staff views on interim disclosures pertaining to the first time adoption of Topic 718.

#### Modification of Employee Share Options Before Adoption of Topic 718

##### [718-10-S50-7](https://asc.understandingaccounting.org/asc/718/10/#718-10-S50-7)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:17.437Z to 2026-09-10T01:04:17.437Z

Record version: sha256:a78c80e82a103737b6800a984dd3b4e9a9aecde70d2d49dda7b18108d80b9f5a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.K, for SEC Staff views on disclosures pertaining to the modification of significant terms of outstanding awards.

Source downloaded (UTC): 2026-09-10T01:04:20.582Z to 2026-09-10T01:04:20.582Z

Record version: sha256:c2704594487049a032f97c3475d1b553837f50519434689e12eb0ec05dfe16b1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-S55: SEC 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/718/10/#sec-55-implementation-guidance-and-illustrations)

SEC content: yes

#### Accounting Issues Upon Transition from Nonpublic to Public Entity

##### [718-10-S55-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S55-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:20.582Z to 2026-09-10T01:04:20.582Z

Record version: sha256:b2332acbb9a14f3f0f6392d77293424af702de4dccab3c20594d0a45ae038760

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.B., for SEC Staff views on issues pertaining to the transition from a nonpublic to a public entity.

#### Valuation Methods

##### [718-10-S55-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-S55-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:20.582Z to 2026-09-10T01:04:20.582Z

Record version: sha256:9b411ba28aa2ececf19d0565b4fff820aafa437170495871a1bc0d6239fa3f8e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.C, for SEC Staff views on the use of valuation techniques or models to estimate fair value.

#### Certain Assumptions Used in Valuation Methods

##### [718-10-S55-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-S55-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:20.582Z to 2026-09-10T01:04:20.582Z

Record version: sha256:914eeed3bbb9a0cb7595e13a88c9500c588d3ce5cb134534fd478b419405e62b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.D.1, for SEC Staff views on the factors to be considered when estimating expected volatility.

##### [718-10-S55-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-S55-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:20.582Z to 2026-09-10T01:04:20.582Z

Record version: sha256:fde969f45d50f2997a53f95e89565968a78ed4de375c7cb1d1d1f09712e735ea

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.D.2, for SEC Staff views on factors to be considered when estimating expected term.

#### Modification of Employee Share Options Before Adoption of Topic 718

##### [718-10-S55-5](https://asc.understandingaccounting.org/asc/718/10/#718-10-S55-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:20.582Z to 2026-09-10T01:04:20.582Z

Record version: sha256:4f72655f46be6aa8c810972a803a8a9b0f09a275250141d75a0b9001b349d991

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.K, for SEC Staff views on the modification of employee share options before the adoption of Topic 718.

#### Application of the Measurement Provisions of Topic 718 to Foreign Private Issuers

##### [718-10-S55-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-S55-6)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:20.582Z to 2026-09-10T01:04:20.582Z

Record version: sha256:6c115cbe2ed717a0f79bbda2ae43643e409a35c0c1a8d7c4ec8a01ca0a5c89dd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1), SAB Topic 14.L, for SEC Staff views on the application of the measurement provisions of Topic 718 to foreign private issuers.

Source downloaded (UTC): 2026-09-10T01:04:22.441Z to 2026-09-10T01:04:22.441Z

Record version: sha256:42680bd2c40d8dd2f51b0075aa405df0ed897a7cfb48b53d079da7b30dcfd2be

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-S60: SEC 60 Relationships

[Read section](https://asc.understandingaccounting.org/asc/718/10/#sec-60-relationships)

SEC content: yes

#### Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee

##### [718-10-S60-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S60-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:22.441Z to 2026-09-10T01:04:22.441Z

Record version: sha256:f6dc125b741f58f2e32940afd5ad23aa53f1dd309b23fa8feed3f7ce90876510

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [323-10-S99-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-S99-4), SEC Observer Comment: Accounting by an Investor for Stock-based Compensation Granted to Employees of an Equity Method Investee, for SEC Staff views on classification by an investor of investor shares issued to employees of an equity method investee.

Source downloaded (UTC): 2026-09-10T01:04:29.503Z to 2026-09-10T01:04:29.503Z

Record version: sha256:a5410918f31d1072a289f5d636851a0938b1e00cb0a618bbe92055f69ebc6615

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 718-10-S99: SEC 99 SEC Materials

[Read section](https://asc.understandingaccounting.org/asc/718/10/#sec-99-sec-materials)

SEC content: yes

#### SEC Staff Guidance

##### [718-10-S99-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:29.503Z to 2026-09-10T01:04:29.503Z

Record version: sha256:2dc8dfc856a75a7eedc80dc7339bf301cfc4fef8e22425b75850663fde0d9134

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following is the text of SAB Topic 14, Share-Based Payment.

-   The interpretations in this SAB express views of the staff regarding the interaction between FASB ASC Topic 718, Compensation—Stock Compensation, and certain SEC rules and regulations and provide the staff's views regarding the valuation of share-based payment arrangements for public companies. FASB ASC Topic 718 is based on the underlying accounting principle that compensation cost resulting from share-based payment transactions be recognized in financial statements at fair value. <sup class="ph sup">FN1</sup> Recognition of compensation cost at fair value will provide investors and other users of financial statements with more complete and comparable financial information.
    
    -   FN1 FASB ASC paragraphs
        
        [718-10-30-2 through 30-4](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-2)
        
        .
        
-   FASB ASC Topic 718 addresses a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.
    
-   FASB ASC Topic 718 replaced guidance originally issued in 1995 that established as preferable, but did not require, a fair-value-based method of accounting for share-based payment transactions with employees. It also replaced guidance originally issued in 1996 that provided different recognition and measurement requirements for share-based payment awards granted to nonemployees than for those granted to employees.
    
-   The staff believes the guidance in this SAB will assist issuers in their application of FASB ASC Topic 718 and enhance the information received by investors and other users of financial statements, thereby assisting them in making investment and other decisions. This SAB includes interpretive guidance related to the transition from nonpublic to public entity <sup class="ph sup">FN2</sup> status, valuation methods (including assumptions such as expected volatility, expected term, and current price of the underlying share, particularly when valuing spring-loaded awards<sup class="ph sup">FN3</sup>), the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, and capitalization of compensation cost related to share-based payment arrangements.
    
    -   FN2 Defined in the FASB ASC Master Glossary.
        
    -   FN3 A share-based payment award granted when a company is in possession of material nonpublic information to which the market is likely to react positively when the information is announced is sometimes referred to as being "spring-loaded." The interpretive guidance included in this SAB with respect to spring-loaded share-based payment awards is not limited to share options, and applies to all instruments including, for example, restricted stock units.
        
-   The staff recognizes that there is a range of conduct that a reasonable issuer might use to make estimates and valuations and otherwise apply FASB ASC Topic 718, and the interpretive guidance provided by this SAB. Thus, throughout this SAB the use of the terms "reasonable" and "reasonably" is not meant to imply a single conclusion or methodology, but to encompass the full range of potential conduct, conclusions or methodologies upon which an issuer may reasonably base its valuation decisions. Different conduct, conclusions or methodologies by different issuers in a given situation does not of itself raise an inference that any of those issuers is acting unreasonably. While the zone of reasonable conduct is not unlimited, the staff expects that it will be rare, except when observable market prices of identical or similar equity or liability instruments in active markets are available, when there is only one acceptable choice in estimating the fair value of share-based payment arrangements under the provisions of FASB ASC Topic 718 and the interpretive guidance provided by this SAB in any given situation. In addition, as discussed in the Interpretive Response to Question 1 of Section C, Valuation Methods, estimates of fair value are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made under FASB ASC Topic 718.
    
-   _A. Removed by SAB 120_
    
-   _B. Transition From Nonpublic to Public Entity Status_
    
-   _Facts:_ Company A is a nonpublic entity <sup class="ph sup">FN4</sup> that first files a registration statement with the SEC to register its equity securities for sale in a public market on January 2, 20X8. As a nonpublic entity, Company A had been assigning value to its share options <sup class="ph sup">FN5</sup> under the calculated value method prescribed by FASB ASC Topic 718, Compensation—Stock Compensation, <sup class="ph sup">FN6</sup> and had elected to measure its liability awards based on intrinsic value. Company A is considered a public entity on January 2, 20X8 when it makes its initial filing with the SEC in preparation for the sale of its shares in a public market.
    
    -   FN4 Defined in the FASB ASC Master Glossary.
        
    -   FN5 For purposes of this staff accounting bulletin, the phrase "share options" is used to refer to "share options or similar instruments."
        
    -   FN6 FASB ASC paragraph [718-10-30-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-20) requires a nonpublic entity to use the calculated value method when it is not able to reasonably estimate the fair value of its equity share options and similar instruments because it is not practicable for it to estimate the expected volatility of its share price. FASB ASC paragraph [718-10-55-51](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-51) indicates that a nonpublic entity may be able to identify similar public entities for which share or option price information is available and may consider the historical, expected, or implied volatility of those entities' share prices in estimating expected volatility. The staff would expect an entity that becomes a public entity and had previously measured its share options under the calculated value method to be able to support its previous decision to use calculated value and to provide the disclosures required by FASB ASC subparagraph [718-10-50-2(f)(2)(ii)](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2).
        
-   _Question 1:_ How should Company A account for the share options that were granted prior to January 2, 20X8 for which the requisite service has not been rendered by January 2, 20X8?
    
-   _Interpretive Response:_ Prior to becoming a public entity, Company A had been assigning value to its share options under the calculated value method. The staff believes that Company A should continue to follow that approach for those share options that were granted prior to January 2, 20X8, unless those share options are subsequently modified, repurchased or cancelled. <sup class="ph sup">FN7</sup> If the share options are subsequently modified, repurchased or cancelled, Company A would assess the event under the public company provisions of FASB ASC Topic 718. For example, if Company A modified the share options on February 1, 20X8, any incremental compensation cost would be measured under FASB ASC subparagraph [718-20-35-3(a)](https://asc.understandingaccounting.org/asc/718/20/#718-20-35-3), as the fair value of the modified share options over the fair value of the original share options measured immediately before the terms were modified. <sup class="ph sup">FN8</sup>
    
    -   FN7 This view is consistent with the FASB's basis for rejecting full retrospective application of FASB ASC Topic 718 as described in the basis for conclusions of Statement 123R, paragraph B251.
        
    -   FN8 FASB ASC paragraph [718-20-55-94](https://asc.understandingaccounting.org/asc/718/20/#718-20-55-94). The staff believes that because Company A is a public entity as of the date of the modification, it would be inappropriate to use the calculated value method to measure the original share options immediately before the terms were modified.
        
-   _Question 2:_ How should Company A account for its liability awards granted prior to January 2, 20X8 that are fully vested but have not been settled by January 2, 20X8?
    
-   _Interpretive Response:_ As a nonpublic entity, Company A had elected to measure its liability awards subject to FASB ASC Topic 718 at intrinsic value. <sup class="ph sup">FN9</sup> When Company A becomes a public entity, it should measure the liability awards at their fair value determined in accordance with FASB ASC Topic 718. <sup class="ph sup">FN10</sup> In that reporting period there will be an incremental amount of measured cost for the difference between fair value as determined under FASB ASC Topic 718 and intrinsic value. For example, assume the intrinsic value in the period ended December 31, 20X7 was $10 per award. At the end of the first reporting period ending after January 2, 20X8 (when Company A becomes a public entity), assume the intrinsic value of the award is $12 and the fair value as determined in accordance with FASB ASC Topic 718 is $15. The measured cost in the first reporting period after December 31, 20X7 would be $5. <sup class="ph sup">FN11</sup>
    
    -   FN9 FASB ASC paragraph [718-30-30-2](https://asc.understandingaccounting.org/asc/718/30/#718-30-30-2).
        
    -   FN10 FASB ASC paragraph [718-30-35-3](https://asc.understandingaccounting.org/asc/718/30/#718-30-35-3).
        
    -   FN11 $15 fair value less $10 intrinsic value equals $5 of incremental cost.
        
-   _Question 3:_ After becoming a public entity, may Company A retrospectively apply the fair-value-based method to its awards that were granted prior to the date Company A became a public entity?
    
-   _Interpretive Response:_ No. Before becoming a public entity, Company A did not use the fair-value-based method for either its share options or its liability awards. The staff does not believe it is appropriate for Company A to apply the fair-value-based method on a retrospective basis, because it would require the entity to make estimates of a prior period, which, due to hindsight, may vary significantly from estimates that would have been made contemporaneously in prior periods. <sup class="ph sup">FN12</sup>
    
    -   FN12 This view is consistent with the FASB's basis for rejecting full retrospective application of FASB ASC Topic 718 as described in the basis for conclusions of Statement 123R, paragraph B251.
        
-   _Question 4:_ Upon becoming a public entity, what disclosures should Company A consider in addition to those prescribed by FASB ASC Topic 718? <sup class="ph sup">FN13</sup>
    
    -   FN13 FASB ASC Section 718-10-50.
        
-   _Interpretive Response:_ In the registration statement filed on January 2, 20X8, Company A should clearly describe in MD&A the change in accounting policy that will be required by FASB ASC Topic 718 in subsequent periods and the reasonably likely material future effects. <sup class="ph sup">FN14</sup> In subsequent filings, Company A should provide financial statement disclosure of the effects of the changes in accounting policy. In addition, Company A should consider the requirements of Item 303(b)(3) of Regulation S-K regarding critical accounting estimates in MD&A.
    
    -   FN14 _See_ Item 303 of Regulation S-K.
        
-   _C. Valuation Methods_
    
-   FASB ASC paragraph [718-10-30-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6) (Compensation—Stock Compensation Topic) indicates that the measurement objective for equity instruments awarded to grantees is to estimate at the grant date the fair value of the equity instruments the entity is obligated to issue when grantees have delivered the good or rendered the service and satisfied any other conditions necessary to earn the right to benefit from the instruments. <sup class="ph sup">FN15</sup> The Topic also states that observable market prices of identical or similar equity or liability instruments in active markets are the best evidence of fair value and, if available, should be used as the basis for the measurement for equity and liability instruments awarded in a share-based payment transaction. <sup class="ph sup">FN16</sup> However, if observable market prices of identical or similar equity or liability instruments are not available, the fair value shall be estimated by using a valuation technique or model that complies with the measurement objective, as described in FASB ASC Topic 718. <sup class="ph sup">FN17</sup>
    
    -   FN15 FASB ASC paragraph [718-10-30-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-1) states that this guidance applies equally to awards classified as liabilities.
        
    -   FN16 FASB ASC paragraph [718-10-55-10](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-10).
        
    -   FN17 FASB ASC paragraph [718-10-55-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-11).
        
-   _Question 1:_ If a valuation technique or model is used to estimate fair value, to what extent will the staff consider a company's estimates of fair value to be materially misleading because the estimates of fair value do not correspond to the value ultimately realized by the grantees who received the share options?
    
-   _Interpretive Response:_ The staff understands that estimates of fair value of share options, while derived from expected value calculations, cannot predict actual future events. <sup class="ph sup">FN18</sup> The estimate of fair value represents the measurement of the cost of the grantee’s goods or services to the company. The estimate of fair value should reflect the assumptions marketplace participants would use in determining how much to pay for an instrument on the fair value measurement date <sup class="ph sup">FN19</sup>. For example, valuation techniques used in estimating the fair value of share options may consider information about a large number of possible share price paths, while, of course, only one share price path will ultimately emerge. If a company makes a good faith fair value estimate in accordance with the provisions of FASB ASC Topic 718 in a way that is designed to take into account the assumptions that underlie the instrument's value that marketplace participants would reasonably make, then subsequent future events that affect the instrument's value do not provide meaningful information about the quality of the original fair value estimate. As long as the share options were originally so measured, changes in a share option's value, no matter how significant, subsequent to its grant date do not call into question the reasonableness of the grant date fair value estimate.
    
    -   FN18 FASB ASC paragraph [718-10-55-15](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-15)states, "The fair value of those instruments at a single point in time is not a forecast of what the estimated fair value of those instruments may be in the future."
        
    -   FN19 Generally, the grant date for equity awards or the reporting date for liability-classified awards.
        
-   _Question 2:_ In order to meet the fair value measurement objective in FASB ASC Topic 718, are certain valuation techniques preferred over others?
    
-   _Interpretive Response:_ FASB ASC paragraph [718-10-55-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-17) clarifies that the Topic does not specify a preference for a particular valuation technique or model. As stated in FASB ASC paragraph [718-10-55-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-11) in order to meet the fair value measurement objective, a company should select a valuation technique or model that (a) is applied in a manner consistent with the fair value measurement objective and other requirements of FASB ASC Topic 718, (b) is based on established principles of financial economic theory and generally applied in that field and (c) reflects all substantive characteristics of the instrument (except for those explicitly excluded by FASB ASC Topic 718).
    
-   The chosen valuation technique or model must meet all three of the requirements stated above. In valuing a particular instrument, certain techniques or models may meet the first and second criteria but may not meet the third criterion because the techniques or models are not designed to reflect certain characteristics contained in the instrument. For example, for a share option in which the exercisability is conditional on a specified increase in the price of the underlying shares, the Black-Scholes-Merton closed-form model would not generally be an appropriate valuation model because, while it meets both the first and second criteria, it is not designed to take into account that type of market condition. <sup class="ph sup">FN20</sup>
    
    -   FN20 _See_ FASB ASC paragraphs [718-10-55-16](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-16) and [718-10-55-20](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-20).
        
-   Further, the staff understands that a company may consider multiple techniques or models that meet the fair value measurement objective before making its selection as to the appropriate technique or model. The staff would not object to a company's choice of a technique or model as long as the technique or model meets the fair value measurement objective. For example, a company is not required to use a lattice model simply because that model was the most complex of the models the company considered.
    
-   _Question 3:_ In subsequent periods, may a company change the valuation technique or model chosen to value instruments with similar characteristics? <sup class="ph sup">FN21</sup>
    
    -   FN21 FASB ASC paragraph [718-10-55-17](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-17) indicates that an entity may use different valuation techniques or models for instruments with different characteristics.
        
-   _Interpretive Response:_ As long as the new technique or model meets the fair value measurement objective as described in Question 2 above, the staff would not object to a company changing its valuation technique or model. <sup class="ph sup">FN22</sup> A change in the valuation technique or model used to meet the fair value measurement objective would not be considered a change in accounting principle.<sup class="ph sup">FN23</sup> As such, a company would not be required to file a preferability letter from its independent accountants as described in Rule 10-01(b)(6) of Regulation S-X when it changes valuation techniques or models. However, the staff would not expect that a company would frequently switch between valuation techniques or models, particularly in circumstances where there was no significant variation in the form of share-based payments being valued. Disclosure in the footnotes of the basis for any change in technique or model would be appropriate. <sup class="ph sup">FN24</sup>
    
    -   FN22 The staff believes that a company should take into account the reason for the change in technique or model in determining whether the new technique or model meets the fair value measurement objective. For example, changing a technique or model from period to period for the sole purpose of lowering the fair value estimate of a share option would not meet the fair value measurement objective of the Topic.
        
    -   FN23 FASB ASC paragraph [718-10-55-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-27).
        
    -   FN24 _See generally_ FASB ASC paragraph [718-10-50-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1).
        
-   _Question 4:_ Must every company that issues share options or similar instruments hire an outside third party to assist in determining the fair value of the share options?
    
-   _Interpretive Response:_ No. However, the valuation of a company's share options or similar instruments should be performed by a person with the requisite expertise.
    
-   _D. Certain Assumptions Used in Valuation Methods_
    
-   FASB ASC Topic 718's (Compensation—Stock Compensation Topic) fair value measurement objective for equity instruments awarded to grantees for goods or services is to estimate the grant-date fair value of the equity instruments that the entity is obligated to issue when grantees have delivered the good or rendered the service and satisfied any other conditions necessary to earn the right to benefit from the instruments. <sup class="ph sup">FN25</sup> In order to meet this fair value measurement objective, management will generally be required to develop estimates regarding (1) the expected volatility of its company's share price; (2) the expected term of the option, taking into account both the contractual term of the option and the effects of grantees’ expected exercise and post-vesting termination behavior; and (3) the determination of the current price of the underlying share. The staff is providing guidance in the following sections related to the expected volatility, expected term and current share price assumptions to assist public entities in applying those requirements.
    
    -   FN25 FASB ASC paragraph [718-10-30-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6). FASB ASC paragraph [718-10-30-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-1) states that this guidance applies equally to awards classified as liabilities.
        
-   1\. Expected Volatility
    
-   FASB ASC paragraph [718-10-55-36](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-36) states, "Volatility is a measure of the amount by which a financial variable, such as share price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Option-pricing models require an estimate of expected volatility as an assumption because an option's value is dependent on potential share returns over the option's term. The higher the volatility, the more the returns on the share can be expected to vary—up or down. Because an option's value is unaffected by expected negative returns on the shares, other things \[being\] equal, an option on a share with higher volatility is worth more than an option on a share with lower volatility."
    
-   _Facts:_ Company B is a public entity whose common shares have been publicly traded for over twenty years. Company B also has multiple options on its shares outstanding that are traded on an exchange ("traded options"). Company B grants share options on January 2, 20X6.
    
-   _Question 1:_ What should Company B consider when estimating expected volatility for purposes of measuring the fair value of its share options?
    
-   _Interpretive Response:_ FASB ASC Topic 718 does not specify a particular method of estimating expected volatility. However, the Topic does clarify that the objective in estimating expected volatility is to ascertain the assumption about expected volatility that marketplace participants would likely use in determining an exchange price for an option. <sup class="ph sup">FN26</sup> FASB ASC Topic 718 provides a list of factors entities should consider in estimating expected volatility. <sup class="ph sup">FN27</sup> Company B may begin its process of estimating expected volatility by considering its historical volatility. <sup class="ph sup">FN28</sup> However, Company B should also then consider, based on available information, how the expected volatility of its share price may differ from historical volatility. <sup class="ph sup">FN29</sup> Implied volatility <sup class="ph sup">FN30</sup> can be useful in estimating expected volatility because it is generally reflective of both historical volatility and expectations of how future volatility will differ from historical volatility.
    
    -   FN26 FASB ASC paragraph [718-10-55-35](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-35).
        
    -   FN27 FASB ASC paragraph [718-10-55-37](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37).
        
    -   FN28 FASB ASC paragraph [718-10-55-40](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-40).
        
    -   FN29 _Ibid._
        
    -   FN30 Implied volatility is the volatility assumption inherent in the market prices of a company's traded options or other financial instruments that have option-like features. Implied volatility is derived by entering the market price of the traded financial instrument, along with assumptions specific to the financial options being valued, into a model based on a constant volatility estimate (_e.g.,_ the Black-Scholes-Merton closed-form model) and solving for the unknown assumption of volatility.
        
-   The staff believes that companies should make good faith efforts to identify and use sufficient information in determining whether taking historical volatility, implied volatility or a combination of both into account will result in the best estimate of expected volatility. The staff believes companies that have appropriate traded financial instruments from which they can derive an implied volatility should generally consider this measure. The extent of the ultimate reliance on implied volatility will depend on a company's facts and circumstances; however, the staff believes that a company with actively traded options or other financial instruments with embedded options <sup class="ph sup">FN31</sup> generally could place greater (or even exclusive) reliance on implied volatility. (_See_ the Interpretive Responses to Questions 3 and 4 below.)
    
    -   FN31 The staff believes implied volatility derived from embedded options can be utilized in determining expected volatility if, in deriving the implied volatility, the company considers all relevant features of the instruments (_e.g.,_ value of the host instrument, value of the option, etc.). The staff believes the derivation of implied volatility from other than simple instruments (_e.g.,_ a simple convertible bond) can, in some cases, be impracticable due to the complexity of multiple features.
        
-   The process used to gather and review available information to estimate expected volatility should be applied consistently from period to period. When circumstances indicate the availability of new or different information that would be useful in estimating expected volatility, a company should incorporate that information.
    
-   _Question 2:_ What should Company B consider if computing historical volatility? <sup class="ph sup">FN32</sup>
    
    -   FN32 _See_ FASB ASC paragraph [718-10-55-37](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37).
        
-   _Interpretive Response:_ The following should be considered in the computation of historical volatility:
    
-   1\. Method of Computing Historical Volatility—
    
-   The staff believes the method selected by Company B to compute its historical volatility should produce an estimate that is representative of a marketplace participant’s expectations about Company B's future volatility over the expected (if using a Black-Scholes-Merton closed-form model) or contractual (if using a lattice model) term <sup class="ph sup">FN33</sup> of its share options. Certain methods may not be appropriate for longer term share options if they weight the most recent periods of Company B's historical volatility much more heavily than earlier periods. <sup class="ph sup">FN34</sup> For example, a method that applies a factor to certain historical price intervals to reflect a decay or loss of relevance of that historical information emphasizes the most recent historical periods and thus would likely bias the estimate to this recent history. <sup class="ph sup">FN35</sup>
    
    -   FN33 For purposes of this staff accounting bulletin, the phrase "expected or contractual term, as applicable" has the same meaning as the phrase "expected (if using a Black-Scholes-Merton closed-form model) or contractual (if using a lattice model) term of a share option."
        
    -   FN34 FASB ASC subparagraph [718-10-55-37(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37) states that entities should consider historical volatility over a period generally commensurate with the expected or contractual term, as applicable, of the share option. Accordingly, the staff believes methods that place extreme emphasis on the most recent periods may be inconsistent with this guidance.
        
    -   FN35 Generalized Autoregressive Conditional Heteroskedasticity (GARCH) is an example of a method that demonstrates this characteristic.
        
-   2\. Amount of Historical Data—
    
-   FASB ASC subparagraph [718-10-55-37(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37) indicates entities should consider historical volatility over a period generally commensurate with the expected or contractual term, as applicable, of the share option. The staff believes Company B could utilize a period of historical data longer than the expected or contractual term, as applicable, if it reasonably believes the additional historical information will improve the estimate. For example, assume Company B decided to utilize a Black-Scholes-Merton closed-form model to estimate the value of the share options granted on January 2, 20X6 and determined that the expected term was six years. Company B would not be precluded from using historical data longer than six years if it concludes that data would be relevant.
    
-   3\. Frequency of Price Observations—
    
-   FASB ASC subparagraph [718-10-55-37(d)](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37) indicates an entity should use appropriate and regular intervals for price observations based on facts and circumstances that provide the basis for a reasonable fair value estimate. Accordingly, the staff believes Company B should consider the frequency of the trading of its shares and the length of its trading history in determining the appropriate frequency of price observations. The staff believes using daily, weekly or monthly price observations may provide a sufficient basis to estimate expected volatility if the history provides enough data points on which to base the estimate. <sup class="ph sup">FN36</sup> Company B should select a consistent point in time within each interval when selecting data points. <sup class="ph sup">FN37</sup>
    
    -   FN36 Further, if shares of a company are thinly traded the staff believes the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations. The volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
        
    -   FN37 FASB ASC paragraph [718-10-55-40](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-40) states that a company should establish a process for estimating expected volatility and apply that process consistently from period to period. In addition, FASB ASC paragraph [718-10-55-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-27) indicates that assumptions used to estimate the fair value of instruments granted in share-based payment transactions should be determined in a consistent manner from period to period.
        
-   4\. Consideration of Future Events—
    
-   The objective in estimating expected volatility is to ascertain the assumptions that marketplace participants would likely use in determining an exchange price for an option. <sup class="ph sup">FN38</sup> Accordingly, the staff believes that Company B should consider those future events that it reasonably concludes a marketplace participant would also consider in making the estimation. For example, if Company B has recently announced a merger with a company that would change its business risk in the future, then it should consider the impact of the merger in estimating the expected volatility if it reasonably believes a marketplace participant would also consider this event.
    
-   The staff believes that careful consideration is required to determine whether material non-public information is currently available (or would be available) to the issuer that would be considered by a marketplace participant in estimating the expected volatility. <sup class="ph sup">FN39</sup> For example, if Company B has entered into a material transaction that has not yet been announced prior to its grant of equity instruments, the specific facts and circumstances of the material transaction may lead Company B to conclude that the impact of this event should be included in estimating the expected volatility when determining the grant-date fair value of those equity instruments.
    
    -   FN38 FASB ASC paragraph [718-10-55-35](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-35).
        
    -   FN39 FASB ASC paragraph [718-10-55-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-13) states "assumptions shall reflect information that is (or would be) available to form the basis for an amount at which the instruments being valued would be exchanged. In estimating fair value, the assumptions used shall not represent the biases of a particular party."
        
-   5\. Exclusion of Periods of Historical Data—
    
-   In some instances, due to a company's particular business situations, a period of historical volatility data may not be relevant in evaluating expected volatility. <sup class="ph sup">FN40</sup> In these instances, that period should be disregarded. The staff believes that if Company B disregards a period of historical volatility, it should be prepared to support its conclusion that its historical share price during that previous period is not relevant to estimating expected volatility due to one or more discrete and specific historical events and that similar events are not expected to occur during the expected term of the share option. The staff believes these situations would be rare.
    
    -   FN40 FASB ASC paragraph [718-10-55-37](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37).
        
-   _Question 3:_ What should Company B consider when evaluating the extent of its reliance on the implied volatility derived from its traded options?
    
-   _Interpretive Response:_ To achieve the objective of estimating expected volatility as stated in FASB ASC paragraphs
    
    [718-10-55-35 through 55-41](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-35)
    
    , the staff believes Company B generally should consider the following in its evaluation:
    
-   1) the volume of market activity of the underlying shares and traded options;
    
-   2) the ability to synchronize the variables used to derive implied volatility;
    
-   3) the similarity of the exercise prices of the traded options to the exercise price of the newly-granted share options;
    
-   4) the similarity of the length of the term of the traded and newly-granted share options; <sup class="ph sup">FN41</sup> and
    
-   5) consideration of material non-public information.
    
    -   FN41 _See generally_ Options, Futures, and Other Derivatives by John C. Hull (Pearson, 11th Edition, 2021).
        
-   1\. Volume of Market Activity—
    
-   The staff believes Company B should consider the volume of trading in its underlying shares as well as the traded options. For example, prices for instruments in actively traded markets are more likely to reflect a marketplace participant's expectations regarding expected volatility.
    
-   2\. Synchronization of the Variables—
    
-   Company B should synchronize the variables used to derive implied volatility. For example, to the extent reasonably practicable, Company B should use market prices (either traded prices or the average of bid and asked quotes) of the traded options and its shares measured at the same point in time. This measurement should also be synchronized with the grant of the share options; however, when this is not reasonably practicable, the staff believes Company B should derive implied volatility as of a point in time as close to the grant of the share options as reasonably practicable.
    
-   3\. Similarity of the Exercise Prices—
    
-   The staff believes that when valuing an at-the-money share option, the implied volatility derived from at- or near-the-money traded options generally would be most relevant. <sup class="ph sup">FN42</sup> If, however, it is not possible to find at- or near-the-money traded options, Company B should select multiple traded options with an average exercise price close to the exercise price of the share option. <sup class="ph sup">FN43</sup>
    
    -   FN42 Implied volatilities of options differ systematically over the "moneyness" of the option. This pattern of implied volatilities across exercise prices is known as the "volatility smile" or "volatility skew." Studies such as "Implied Volatility" by Stewart Mayhew, Financial Analysts Journal, July-August 1995, as well as more recent studies, have found that implied volatilities based on near-the-money options do as well as sophisticated weighted implied volatilities in estimating expected volatility. In addition, the staff believes that because near-the-money options are generally more actively traded, they may provide a better basis for deriving implied volatility.
        
    -   FN43 The staff believes a company could use a weighted-average implied volatility based on traded options that are either in-the-money or out-of-the-money. For example, if the share option has an exercise price of $52, but the only traded options available have exercise prices of $50 and $55, then the staff believes that it is appropriate to use a weighted average based on the implied volatilities from the two traded options; for this example, a 40% weight on the implied volatility calculated from the option with an exercise price of $55 and a 60% weight on the option with an exercise price of $50.
        
-   4\. Similarity of Length of Terms—
    
-   The staff believes that when valuing a share option with a given expected or contractual term, as applicable, the implied volatility derived from a traded option with a similar term would be the most relevant. However, if there are no traded options with maturities that are similar to the share option's contractual or expected term, as applicable, then the staff believes Company B could consider traded options with a remaining maturity of six months or greater. <sup class="ph sup">FN44</sup> However, when using traded options with a term of less than one year, <sup class="ph sup">FN45</sup> the staff would expect the company to also consider other relevant information in estimating expected volatility. In general, the staff believes more reliance on the implied volatility derived from a traded option would be expected the closer the remaining term of the traded option is to the expected or contractual term, as applicable, of the share option.
    
    -   FN44 The staff believes it may also be appropriate to consider the entire term structure of volatility provided by traded options with a variety of remaining maturities. If a company considers the entire term structure in deriving implied volatility, the staff would expect a company to include some options in the term structure with a remaining maturity of six months or greater.
        
    -   FN45 The staff believes the implied volatility derived from a traded option with a term of one year or greater would typically not be significantly different from the implied volatility that would be derived from a traded option with a significantly longer term.
        
-   5\. Consideration of Material Nonpublic Information—
    
-   When a company is in possession of material non-public information, the staff believes that the related guidance in the interpretive response to Question 2 above would also be relevant in determining whether the implied volatility appropriately reflects a marketplace participant’s expectations of future volatility.
    
-   The staff believes Company B's evaluation of the factors above should assist in determining whether the implied volatility appropriately reflects the market's expectations of future volatility and thus the extent of reliance that Company B reasonably places on the implied volatility.
    
-   _Question 4:_ Are there situations in which it is acceptable for Company B to rely exclusively on either implied volatility or historical volatility in its estimate of expected volatility?
    
-   _Interpretive Response:_ As stated above, FASB ASC Topic 718 does not specify a method of estimating expected volatility; rather, it provides a list of factors that should be considered and requires that an entity's estimate of expected volatility be reasonable and supportable. <sup class="ph sup">FN46</sup> Many of the factors listed in FASB ASC Topic 718 are discussed in Questions 2 and 3 above. The objective of estimating volatility, as stated in FASB ASC Topic 718, is to ascertain the assumption about expected volatility that marketplace participants would likely use in determining an exchange price for an option. <sup class="ph sup">FN47</sup> The staff believes that a company, after considering the factors listed in FASB ASC Topic 718, could, in certain situations, reasonably conclude that exclusive reliance on either historical or implied volatility would provide an estimate of expected volatility that meets this stated objective.
    
    -   FN46 FASB ASC paragraphs
        
        [718-10-55-36 through 55-37](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-36)
        
        .
        
    -   FN47 FASB ASC paragraph [718-10-55-35](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-35).
        
-   The staff would not object to Company B placing exclusive reliance on implied volatility when the following factors are present, as long as the methodology is consistently applied:
    
-   • Company B utilizes a valuation model that is based upon a constant volatility assumption to value its share options; <sup class="ph sup">FN48</sup>
    
    -   FN48 FASB ASC paragraphs [718-10-55-18](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-18) and [718-10-55-39](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-39) discuss the incorporation of a range of expected volatilities into option pricing models. The staff believes that a company that utilizes an option pricing model that incorporates a range of expected volatilities over the option's contractual term should consider the factors listed in FASB ASC Topic 718, and those discussed in the Interpretive Responses to Questions 2 and 3 above, to determine the extent of its reliance (including exclusive reliance) on the derived implied volatility.
        
-   • The implied volatility is derived from options that are actively traded;
    
-   • The market prices (trades or quotes) of both the traded options and underlying shares are measured at a similar point in time to each other and on a date reasonably close to the fair value measurement date of the share options;
    
-   • The traded options have exercise prices that are both (a) near-the-money and (b) close to the exercise price of the share options; <sup class="ph sup">FN49</sup>
    
    -   FN49 When near-the-money options are not available, the staff believes the use of a weighted-average approach, as noted previously, may be appropriate.
        
-   • The remaining maturities of the traded options on which the estimate is based are at least one year, and
    
-   • Material nonpublic information that would be considered in a marketplace participant’s expectation of future volatility does not exist.
    
-   The staff would not object to Company B placing exclusive reliance on historical volatility when the following factors are present, so long as the methodology is consistently applied:
    
-   • Company B has no reason to believe that its future volatility over the expected or contractual term, as applicable, is likely to differ from its past; <sup class="ph sup">FN50</sup>
    
    -   FN50 _See_ FASB ASC paragraph [718-10-55-38](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-38). A change in a company's business model that results in a material alteration to the company's risk profile is an example of a circumstance in which the company's future volatility would be expected to differ from its historical volatility. Other examples may include, but are not limited to, the introduction of a new product that is central to a company's business model or the receipt of U.S. Food and Drug Administration approval for the sale of a new prescription drug.
        
-   • The computation of historical volatility uses a simple average calculation method;
    
-   • A sequential period of historical data at least equal to the expected or contractual term of the share option, as applicable, is used; and
    
-   • A reasonably sufficient number of price observations are used, measured at a consistent point throughout the applicable historical period. <sup class="ph sup">FN51</sup>
    
    -   FN51 If the expected or contractual term, as applicable, of the employee share option is less than three years, the staff believes monthly price observations would not provide a sufficient amount of data.
        
-   _Question 5:_ What disclosures would the staff expect Company B to include in its financial statements and MD&A regarding its assumption of expected volatility?
    
-   _Interpretive Response:_ FASB ASC paragraph [718-10-50-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2) prescribes the minimum information needed to achieve the Topic's disclosure objectives. <sup class="ph sup">FN52</sup> Under that guidance, Company B is required to disclose the expected volatility and the method used to estimate it. <sup class="ph sup">FN53</sup> Accordingly, the staff expects that, at a minimum, Company B would disclose in a footnote to its financial statements how it determined the expected volatility assumption for purposes of determining the fair value of its share options in accordance with FASB ASC Topic 718. For example, at a minimum, the staff would expect Company B to disclose whether it used only implied volatility, historical volatility, or a combination of both, and how it determined any significant adjustments to historical volatility.
    
    -   FN52 FASB ASC paragraph [718-10-50-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1).
        
    -   FN53 FASB ASC subparagraph [718-10-50-2(f)(2)(ii)](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2).
        
-   In addition, Company B should consider the requirements of Regulation S-K Item 303(b)(3) regarding critical accounting estimates in MD&A. A company should determine whether its evaluation of any of the factors listed in Questions 2 and 3 of this section, such as consideration of future events in estimating expected volatility, resulted in an estimate that involves a significant level of estimation uncertainty and has had or is reasonably likely to have a material impact on the financial condition or results of operations of the company.
    
-   _Facts:_ Company C is a newly public entity with limited historical data on the price of its publicly-traded shares and no other traded financial instruments. Company C believes that it does not have sufficient company-specific information regarding the volatility of its share price on which to base an estimate of expected volatility.
    
-   _Question 6:_ What other sources of information should Company C consider in order to estimate the expected volatility of its share price?
    
-   _Interpretive Response:_ FASB ASC Topic 718 provides guidance on estimating expected volatility for newly-public and nonpublic entities that do not have company-specific historical or implied volatility information available. <sup class="ph sup">FN54</sup> Company C may base its estimate of expected volatility on the historical, expected or implied volatility of similar entities whose share or option prices are publicly available. In making its determination as to similarity, Company C would likely consider the industry, stage of life cycle, size and financial leverage of such other entities. <sup class="ph sup">FN55</sup>
    
    -   FN54 FASB ASC paragraphs [718-10-55-25](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-25) and [718-10-55-51](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-51).
        
    -   FN55 FASB ASC paragraph [718-10-55-25](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-25).
        
-   The staff would not object to Company C looking to an industry sector index (_e.g.,_ NASDAQ Computer Index) that is representative of Company C's industry, and possibly its size, to identify one or more similar entities. <sup class="ph sup">FN56</sup> Once Company C has identified similar entities, it would substitute a measure of the individual volatilities of the similar entities for the expected volatility of its share price as an assumption in its valuation model. <sup class="ph sup">FN57</sup> Because of the effects of diversification that are present in an industry sector index, Company C should not substitute the volatility of an index for the expected volatility of its share price as an assumption in its valuation model. <sup class="ph sup">FN58</sup>
    
    -   FN56 If a company operates in a number of different industries, it could look to several industry indices. However, when considering the volatilities of multiple companies, each operating only in a single industry, the staff believes a company should take into account its own leverage, the leverages of each of the entities, and the correlation of the entities' stock returns.
        
    -   FN57 FASB ASC paragraph [718-10-55-51](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-51).
        
    -   FN58 FASB ASC paragraph [718-10-55-25](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-25).
        
-   After similar entities have been identified, Company C should continue to consider the volatilities of those entities unless circumstances change such that the identified entities are no longer similar to Company C. Until Company C has sufficient information available, the staff would not object to Company C basing its estimate of expected volatility on the volatility of similar entities for those periods for which it does not have sufficient information available. <sup class="ph sup">FN59</sup> Until Company C has either a sufficient amount of historical information regarding the volatility of its share price or other traded financial instruments are available to derive an implied volatility to support an estimate of expected volatility, it should consistently apply a process as described above to estimate expected volatility based on the volatilities of similar entities. <sup class="ph sup">FN60</sup>
    
    -   FN59 FASB ASC paragraph [718-10-55-37](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-37). The staff believes that at least two years of daily or weekly historical data could provide a reasonable basis on which to base an estimate of expected volatility if a company has no reason to believe that its future volatility will differ materially during the expected or contractual term, as applicable, from the volatility calculated from this past information. If the expected or contractual term, as applicable, of a share option is shorter than two years, the staff believes a company should use daily or weekly historical data for at least the length of that applicable term.
        
    -   FN60 FASB ASC paragraph [718-10-55-40](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-40).
        
-   2\. Expected Term
    
-   FASB ASC paragraph [718-10-55-29](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-29) states, "The fair value of a traded (or transferable) share option is based on its contractual term because rarely is it economically advantageous to exercise, rather than sell, a transferable share option before the end of its contractual term. Employee share options generally differ from transferable \[or tradable\] share options in that employees cannot sell (or hedge) their share options—they can only exercise them; because of this, employees generally exercise their options before the end of the options' contractual term. Thus, the inability to sell or hedge an employee share option effectively reduces the option's value \[compared to a transferable option\] because exercise prior to the option's expiration terminates its remaining life and thus its remaining time value." Accordingly, FASB ASC Topic 718 requires that when valuing an employee share option under the Black-Scholes-Merton framework the fair value of employee share options be based on the share options' expected term rather than the contractual term.
    
-   FASB ASC paragraph [718-10-55-29A](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-29A) states, "On an award-by-award basis, an entity may elect to use the contractual term as the expected term when estimating the fair value of a nonemployee award to satisfy the measurement objective in paragraph [718-10-30-6](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-6). Otherwise, an entity shall apply the guidance in \[Topic 718\] in estimating the expected term of a nonemployee award, which may result in a term less than the contractual term of the award. If an entity does not elect to use the contractual term as the expected term, similar considerations discussed in paragraph [718-10-55-29](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-29), such as the inability to sell or hedge a nonemployee award, apply when estimating its expected term."
    
-   The staff believes the estimate of expected term should be based on the facts and circumstances available in each particular case. Consistent with our Topic 14 introductory guidance regarding reasonableness, the fact that other possible estimates are later determined to have more accurately reflected the term does not necessarily mean that the particular choice was unreasonable. The staff reminds registrants of the expected term disclosure requirements described in FASB ASC subparagraph [718-10-50-2(f)(2)(i)](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2).
    
-   _Facts:_ Company D utilizes the Black-Scholes-Merton closed-form model to value its share options for the purposes of determining the fair value of the options under FASB ASC Topic 718. Company D recently granted share options to its employees. Based on its review of various factors, Company D determines that the expected term of the options is six years, which is less than the contractual term of ten years.
    
-   _Question 1:_ When determining the fair value of the share options in accordance with FASB ASC Topic 718, should Company D consider an additional discount for nonhedgability and nontransferability?
    
-   _Interpretive Response:_ No. FASB ASC paragraph [718-10-55-29](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-29) indicates that nonhedgability and nontransferability have the effect of increasing the likelihood that an employee share option will be exercised before the end of its contractual term. Nonhedgability and nontransferability therefore factor into the expected term assumption (in this case reducing the term assumption from ten years to six years), and the expected term reasonably adjusts for the effect of these factors. Accordingly, the staff believes that no additional reduction in the term assumption or other discount to the estimated fair value is appropriate for these particular factors. <sup class="ph sup">FN61</sup>
    
    -   FN61 The staff notes the existence of academic literature that supports the assertion that the Black-Scholes-Merton closed-form model, with expected term as an input, can produce reasonable estimates of fair value. Such literature includes J. Carpenter, "The exercise and valuation of executive stock options," Journal of Financial Economics, May 1998, pp.127-158; C. Marquardt, "The Cost of Employee Stock Option Grants: An Empirical Analysis," Journal of Accounting Research, September 2002, p. 1191-1217); and J. Bettis, J. Bizjak and M. Lemmon, "Exercise behavior, valuation, and the incentive effect of employee stock options," Journal of Financial Economics, May 2005, pp. 445-470, as well as more recent studies.
        
-   _Question 2:_ Should forfeitures or terms that stem from forfeitability be factored into the determination of expected term?
    
-   _Interpretive Response:_ No. FASB ASC Topic 718 indicates that the expected term that is utilized as an assumption in a closed-form option-pricing model or a resulting output of a lattice option pricing model when determining the fair value of the share options should not incorporate restrictions or other terms that stem from the pre-vesting forfeitability of the instruments. Under FASB ASC Topic 718, these pre-vesting restrictions or other terms are taken into account by ultimately recognizing compensation cost only for awards for which grantees deliver the good or render the requisite service. <sup class="ph sup">FN62</sup>
    
    -   FN62 FASB ASC paragraph [718-10-30-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-30-11).
        
-   _Question 3:_ Can a company's estimate of expected term ever be shorter than the vesting period?
    
-   _Interpretive Response:_ No. The vesting period forms the lower bound of the estimate of expected term. <sup class="ph sup">FN63</sup>
    
    -   FN63 FASB ASC paragraph [718-10-55-31](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-31).
        
-   _Question 4:_ FASB ASC paragraph [718-10-55-34](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-34)indicates that an entity shall aggregate individual awards into relatively homogenous groups with respect to exercise and post-vesting employment termination behaviors for the purpose of determining expected term, regardless of the valuation technique or model used to estimate the fair value. How many groupings are typically considered sufficient?
    
-   _Interpretive Response:_ As it relates to employee groupings, the staff believes that an entity may generally make a reasonable fair value estimate with as few as one or two groupings. <sup class="ph sup">FN64</sup>
    
    -   FN64 The staff believes the focus should be on groups of employees with significantly different expected exercise behavior. Academic research suggests two such groups might be executives and non-executives. A study by S. Huddart found executives and other senior managers to be significantly more patient in their exercise behavior than more junior employees. (Employee rank was proxied for by the number of options issued to that employee.) _See_ S. Huddart, "Patterns of stock option exercise in the United States," in: J. Carpenter and D. Yermack, eds., Executive Compensation and Shareholder Value: Theory and Evidence (Kluwer, Boston, MA, 1999), pp. 115-142. _See also_ S. Huddart and M. Lang, "Employee stock option exercises: An empirical analysis," Journal of Accounting and Economics, 1996, pp. 5-43.
        
-   _Question 5:_ What approaches could a company use to estimate the expected term of its employee share options?
    
-   _Interpretive Response:_ A company should use an approach that is reasonable and supportable under FASB ASC Topic 718's fair value measurement objective, which establishes that assumptions and measurement techniques should be consistent with those that marketplace participants would be likely to use in determining an exchange price for the share options. <sup class="ph sup">FN65</sup> If, in developing its estimate of expected term, a company determines that its historical share option exercise experience is the best estimate of future exercise patterns, the staff will not object to the use of the historical share option exercise experience to estimate expected term. <sup class="ph sup">FN66</sup>
    
    -   FN65 FASB ASC paragraph [718-10-55-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-13).
        
    -   FN66 Historical share option exercise experience encompasses data related to share option exercise, post-vesting termination, and share option contractual term expiration.
        
-   A company may also conclude that its historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term. This may be the case for a variety of reasons, including, but not limited to, the life of the company and its relative stage of development, past or expected structural changes in the business, differences in terms of past equity-based share option grants, <sup class="ph sup">FN67</sup> or a lack of variety of price paths that the company may have experienced. <sup class="ph sup">FN68</sup>
    
    -   FN67 For example, if a company had historically granted share options that were always in-the-money, and will grant at-the-money options prospectively, the exercise behavior related to the in-the-money options may not be sufficient as the sole basis to form the estimate of expected term for the at-the-money grants.
        
    -   FN68 For example, if a company had a history of previous equity-based share option grants and exercises only in periods in which the company's share price was rising, the exercise behavior related to those options may not be sufficient as the sole basis to form the estimate of expected term for current option grants.
        
-   FASB ASC Topic 718 describes other alternative sources of information that might be used in those cases when a company determines that its historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term. For example, a lattice model (which by definition incorporates multiple price paths) can be used to estimate expected term as an input into a Black-Scholes-Merton closed-form model. <sup class="ph sup">FN69</sup> In addition, FASB ASC paragraph [718-10-55-32](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-32) states that "…expected term might be estimated in some other manner, taking into account whatever relevant and supportable information is available, including industry averages and other pertinent evidence such as published academic research." For example, data about exercise patterns of employees in similar industries and/or situations as the company's might be used.
    
    -   FN69 FASB ASC paragraph [718-10-55-30](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-30).
        
-   _Facts:_ Company E grants equity share options to its employees that have the following basic characteristics: <sup class="ph sup">FN70</sup>
    
    -   FN70 Employee share options with these features are sometimes referred to as "plain vanilla" options.
        
-   • The share options are granted at-the-money;
    
-   • Exercisability is conditional only on performing service through the vesting date; <sup class="ph sup">FN71</sup>
    
    -   FN71 In this fact pattern the requisite service period equals the vesting period.
        
-   • If an employee terminates service prior to vesting, the employee would forfeit the share options;
    
-   • If an employee terminates service after vesting, the employee would have a limited time to exercise the share options (typically 30-90 days); and
    
-   • The share options are nontransferable and nonhedgeable.
    
-   Company E utilizes the Black-Scholes-Merton closed-form model for valuing its employee share options.
    
-   _Question 6:_ As share options with these "plain vanilla" characteristics have been granted in significant quantities by many companies in the past, is the staff aware of any "simple" methodologies that can be used to estimate expected term?
    
-   _Interpretive Response:_ The staff understands that an entity that is unable to rely on its historical exercise data may find that certain alternative information, such as exercise data relating to employees of other companies, is not easily obtainable. As such, some companies may encounter difficulties in making a refined estimate of expected term. Accordingly, if a company concludes that its historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term, the staff will accept the following "simplified" method for "plain vanilla" options consistent with those in the fact set above: Expected term = ((vesting term + original contractual term) / 2). Assuming a ten year original contractual term and graded vesting over four years (25% of the options in each grant vest annually) for the share options in the fact set described above, the resultant expected term would be 6.25 years. <sup class="ph sup">FN72</sup> Academic research on the exercise of options issued to executives provides some general support for outcomes that would be produced by the application of this method. <sup class="ph sup">FN73</sup>
    
    -   FN72 Calculated as \[\[\[1 year vesting term (for the first 25% vested) plus 2 year vesting term (for the second 25% vested) plus 3 year vesting term (for the third 25% vested) plus 4 year vesting term (for the last 25% vested)\] divided by 4 total years of vesting\] plus 10 year contractual life\] divided by 2; that is, (((1+2+3+4)/4) + 10) /2 = 6.25 years.
        
    -   FN73 J.N. Carpenter, "The exercise and valuation of executive stock options," Journal of Financial Economics, 1998, pp.127-158 studies a sample of 40 NYSE and AMEX firms over the period 1979-1994 with share option terms reasonably consistent to the terms presented in the fact set and example. The mean time to exercise after grant was 5.83 years and the median was 6.08 years. The "mean time to exercise" is shorter than expected term since the study's sample included only exercised options. Other research on executive options includes (but is not limited to) J. Carr Bettis; John M. Bizjak; and Michael L. Lemmon, "Exercise behavior, valuation, and the incentive effects of employee stock options," Journal of Financial Economics, May 2005, pp. 445-470. One of the few studies on nonexecutive employee options the staff is aware of is S. Huddart, "Patterns of stock option exercise in the United States," in: J. Carpenter and D. Yermack, eds., Executive Compensation and Shareholder Value: Theory and Evidence (Kluwer, Boston, MA, 1999), pp. 115-142.
        
-   Examples of situations in which the staff believes that it may be appropriate to use this simplified method include the following:
    
    -   • A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded.
        
    -   • A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term.
        
    -   • A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term.
        
-   The staff understands that a company may have sufficient historical exercise data for some of its share option grants but not for others. In such cases, the staff will accept the use of the simplified method for only some but not all share option grants. The staff also does not believe that it is necessary for a company to consider using a lattice model before it decides that it is eligible to use this simplified method. Further, the staff will not object to the use of this simplified method in periods prior to the time a company's equity shares are traded in a public market.
    
-   If a company uses this simplified method, the company should disclose in the notes to its financial statements the use of the method, the reason why the method was used, the types of share option grants for which the method was used if the method was not used for all share option grants, and the periods for which the method was used if the method was not used in all periods. Companies that have sufficient historical share option exercise experience upon which to estimate expected term may not apply this simplified method. In addition, this simplified method is not intended to be applied as a benchmark in evaluating the appropriateness of more refined estimates of expected term.
    
-   The staff does not expect that such a simplified method would be used for share option grants when more relevant detailed information becomes widely available.
    
-   3\. Current Price of the Underlying Share (Including Considerations for Spring-Loaded Grants)
    
-   FASB ASC paragraph [718-10-55-21](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-21) states that "if an observable market price is not available for a share option or similar instrument with the same or similar terms and conditions, an entity shall estimate the fair value of that instrument using a valuation technique or model that meets the requirements in paragraph[718-10-55-11](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-11)," and requires such valuation technique or model to take into account, at a minimum a number of factors including the current price of the underlying share.
    
-   FASB ASC paragraph [718-10-55-27](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-27) states, "Assumptions used to estimate the fair value of equity and liability instruments granted in share-based payment transactions shall be determined in a consistent manner from period to period. For example, an entity might use the closing share price or the share price at another specified time as the current share price on the grant date in estimating fair value, but whichever method is selected, it shall be used consistently."
    
-   For a valuation technique to be consistent with the fair value measurement objective and the other requirements of Topic 718, the staff believes that a consistently applied method to determine the current price of the underlying share should include consideration of whether adjustments to observable market prices _(e.g.,_the closing share price or the share price at another specified time) are required. Such adjustments may be required, for example, when the observable market price does not reflect certain material non-public information known to the company but unavailable to marketplace participants at the time the market price is observed.
    
-   Determining whether an adjustment to the observable market price is necessary, and if so, the magnitude of any adjustment, requires significant judgment. The staff acknowledges that companies generally possess non-public information when entering into share-based payment transactions. The staff believes that an observable market price on the grant date is generally a reasonable and supportable estimate of the current price of the underlying share in a share-based payment transaction, for example, when estimating the grant-date fair value of a routine annual grant to employees that is not designed to be spring-loaded.
    
-   However, companies should carefully consider whether an adjustment to the observable market price is required, for example, when share-based payments arrangements are entered into in contemplation of or shortly before a planned release of material non-public information, and such information is expected to result in a material increase in share price. The staff believes that non-routine spring-loaded grants merit particular scrutiny by those charged with compensation and financial reporting governance. Additionally, when a company has a planned release of material non-public information within a short period of time after the measurement date of a share-based payment, the staff believes a material increase in the market price of the company’s shares upon release of such information indicates marketplace participants would have considered an adjustment to the observable market price on the measurement date to determine the current price of the underlying share.
    
-   _Facts:_ Company D is a public company that entered into a material contract with a customer after market close. Subsequent to entering into the contract but before the market opens the next trading day, Company D awards share options to its executives. The share option award is non-routine, and the award is approved by the Board of Directors in contemplation of the material contract. Company D expects the share price to increase significantly once the announcement of the contract is made the next day. Company D’s accounting policy is to consistently use the closing share price on the day of the grant as the current share price in estimating the grant-date fair value of share options.
    
-   _Question 1:_ Should Company D make an adjustment to the closing share price to determine the current price of shares underlying share options?
    
-   _Interpretive Response:_ Prior to awarding share options in this fact pattern, the staff expects Company D to consider whether such awards are consistent with its policies and procedures, including the terms of the compensation plan approved by shareholders, other governance policies, and legal requirements. The staff reminds companies of the importance of strong corporate governance and controls in granting share options, as well as the requirements to maintain effective internal control over financial reporting and disclosure controls and procedures.
    
-   In estimating the grant-date fair value of share options in this fact pattern, absent an adjustment to the closing share price to reflect the impact of Company D’s new material contract with a customer, the staff believes the closing share price would not be a reasonable and supportable estimate and, without an adjustment the valuation of the award would not meet the fair value measurement objective of FASB ASC Topic 718 because the closing share price would not reflect a price that is unbiased for marketplace participants at the time of the grant. <sup class="ph sup">FN74</sup>
    
    -   FN74 FASB ASC paragraph [718-10-55-13](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-13).
        
-   _Question 2:_ What disclosures would the staff expect Company D to include in its financial statements regarding its determination of the current price of shares underlying newly-granted share options?
    
-   _Interpretive Response:_ FASB ASC paragraph [718-10-50-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1) requires disclosure of information that enables users of the financial statements to understand, among other things, the nature and terms of share-based payment arrangements that existed during the period and the potential effects of those arrangements on shareholders. FASB ASC paragraph [718-10-50-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2) prescribes the minimum information needed to achieve the Topic’s disclosure objectives, including a description of the method used and significant assumptions used to estimate the fair value of awards under share-based payment arrangements.
    
-   Accordingly, the staff expects that, at a minimum, Company D would disclose in a footnote to its financial statements how it determined the current price of shares underlying share options for purposes of determining the grant-date fair value of its share options in accordance with FASB ASC Topic 718. For example, the staff would expect Company D to disclose its accounting policy related to how it identifies when an adjustment to the closing price is required, how it determined the amount of the adjustment to the closing share price, and any significant assumptions used to determine such adjustment, if material. Further, the characteristics of the share options, including their spring-loaded nature, may differ from Company D’s other share-based payment arrangements to such an extent Company D should disclose information regarding these share options separately from other share-based payment arrangements to allow investors to understand Company D’s use of share-based compensation. <sup class="ph sup">FN75</sup>
    
    -   FN75 FASB ASC paragraphs [718-10-50-1](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-1) and [718-10-50-2(g)](https://asc.understandingaccounting.org/asc/718/10/#718-10-50-2).
        
-   Additionally, Company D should consider the applicability of MD&A and other disclosure requirements, including those related to liquidity and capital resources, results of operations, critical accounting estimates, executive compensation, and transactions with related persons. <sup class="ph sup">FN76</sup>
    
    -   FN76 Items 303, 402, and 404 of Regulation S-K.
        
-   _E._ _FASB ASC Topic 718, Compensation—Stock Compensation, and Certain Redeemable Financial Instruments_
    
-   Certain financial instruments awarded in conjunction with share-based payment arrangements have redemption features that require settlement by cash or other assets upon the occurrence of events that are outside the control of the issuer. <sup class="ph sup">FN77</sup> FASB ASC Topic 718 provides guidance for determining whether instruments granted in conjunction with share-based payment arrangements should be classified as liability or equity instruments. Under that guidance, most instruments with redemption features that are outside the control of the issuer are required to be classified as liabilities; however, some redeemable instruments will qualify for equity classification. <sup class="ph sup">FN78</sup> SEC Accounting Series Release No. 268, Presentation in Financial Statements of "Redeemable Preferred Stocks," <sup class="ph sup">FN79</sup> ("ASR 268") and related guidance <sup class="ph sup">FN80</sup> address the classification and measurement of certain redeemable equity instruments.
    
    -   FN77 The terminology “outside the control of the issuer” is used to refer to any of the three redemption conditions described in Rule 5-02.27 of Regulation S-X that would require classification outside permanent equity. That rule requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (1) at a fixed or determinable price on a fixed or determinable date, (2) at the option of the holder, or (3) upon the occurrence of an event that is not solely within the control of the issuer.
        
    -   FN78 FASB ASC paragraphs
        
        [718-10-25-6 through 25-19A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-6)
        
        .
        
    -   FN79 ASR 268, July 27, 1979, Rule 5-02.27 of Regulation S-X.
        
    -   FN80 Related guidance includes EITF Topic No. D-98, _Classification and Measurement of Redeemable Securities_, included in the FASB ASC paragraph [480-10-S99-3A](https://asc.understandingaccounting.org/asc/480/10/#480-10-S99-3A).
        
-   _Facts:_ Under a share-based payment arrangement, Company F grants to an employee shares (or share options) that all vest at the end of four years (cliff vest). The shares (or shares underlying the share options) are redeemable for cash at fair value at the holder's option, but only after six months from the date of share issuance (as defined in FASB ASC Topic 718). Company F has determined that the shares (or share options) would be classified as equity instruments under the guidance of FASB ASC Topic 718. However, under ASR 268 and related guidance, the instruments would be considered to be redeemable for cash or other assets upon the occurrence of events (_e. g.,_ redemption at the option of the holder) that are outside the control of the issuer.
    
-   _Question 1:_ While the instruments are subject to FASB ASC Topic 718, is ASR 268 and related guidance applicable to instruments issued under share-based payment arrangements that are classified as equity instruments under FASB ASC Topic 718?
    
-   _Interpretive Response:_ Yes. The staff believes that registrants must evaluate whether the terms of instruments granted in conjunction with share-based payment arrangements that are not classified as liabilities under FASB ASC Topic 718 result in the need to present certain amounts outside of permanent equity (also referred to as being presented in "temporary equity") in accordance with ASR 268 and related guidance. <sup class="ph sup">FN81</sup>
    
    -   FN81 Instruments granted in conjunction with share-based payment arrangements with employees that do not by their terms require redemption for cash or other assets (at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon the occurrence of an event that is not solely within the control of the issuer) would not be assumed by the staff to require net cash settlement for purposes of applying ASR 268 in circumstances in which FASB ASC Section 815-40-25, Derivatives and Hedging—Contracts in Entity's Own Equity—Recognition, would otherwise require the assumption of net cash settlement. _See_ FASB ASC paragraph [815-40-25-11](https://asc.understandingaccounting.org/asc/815/40/#815-40-25-11) (_See_ FASB ASC paragraph [815-10-65-1](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-1) for the transition and effective date information related to FASB ASU No. 2020-06, _Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity_, which superseded FASB ASC paragraph [815-40-25-11](https://asc.understandingaccounting.org/asc/815/40/#815-40-25-11).), which states, in part: "…the events or actions necessary to deliver registered shares are not controlled by an entity and, therefore, except under the circumstances described in FASB ASC paragraph [815-40-25-16](https://asc.understandingaccounting.org/asc/815/40/#815-40-25-16), if the contract permits the entity to net share or physically settle the contract only by delivering registered shares, it is assumed that the entity will be required to net cash settle the contract." _See also_ FASB ASC subparagraph [718-10-25-15(a)](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-15).
        
-   When an instrument ceases to be subject to FASB ASC Topic 718 and becomes subject to the recognition and measurement requirements of other applicable GAAP, the staff believes that the company should reassess the classification of the instrument as a liability or equity at that time and consequently may need to reconsider the applicability of ASR 268.
    
-   _Question 2:_ How should Company F apply ASR 268 and related guidance to the shares (or share options) granted under the share-based payment arrangements with employees that may be unvested at the date of grant?
    
-   _Interpretive Response:_ Under FASB ASC Topic 718, when compensation cost is recognized for instruments classified as equity instruments, additional paid-in-capital <sup class="ph sup">FN82</sup> is increased. If the award is not fully vested at the grant date, compensation cost is recognized and additional paid-in-capital is increased over time as services are rendered over the requisite service period. A similar pattern of recognition should be used to reflect the amount presented as temporary equity for share-based payment awards that have redemption features that are outside the issuer’s control but are classified as equity instruments under FASB ASC Topic 718. The staff believes Company F should present as temporary equity at each balance sheet date an amount that is based on the redemption amount of the instrument, but takes into account the proportion of consideration received in the form of employee services. Thus, for example, if a nonvested share that qualifies for equity classification under FASB ASC Topic 718 is redeemable at fair value more than six months after vesting, and that nonvested share is 75% vested at the balance sheet date, an amount equal to 75% of the fair value of the share should be presented as temporary equity at that date. Similarly, if an option on a share of redeemable stock that qualifies for equity classification under FASB ASC Topic 718 is 75% vested at the balance sheet date, an amount equal to 75% of the intrinsic <sup class="ph sup">FN83</sup> value of the option should be presented as temporary equity at that date.
    
    -   FN82 Depending on the fact pattern, this may be recorded as common stock and additional paid in capital.
        
    -   FN83 The potential redemption amount of the share option in this illustration is its intrinsic value because the holder would pay the exercise price upon exercise of the option and then, upon redemption of the underlying shares, the company would pay the holder the fair value of those shares. Thus, the net cash outflow from the arrangement would be equal to the intrinsic value of the share option. In situations where there would be no cash inflows from the share option holder, the cash required to be paid to redeem the underlying shares upon the exercise of the put option would be the redemption value.
        
-   _Question 3:_ Would the methodology described for employee awards in the Interpretive Response to Question 2 above apply to nonemployee awards to be issued in exchange for goods or services with similar terms to those described above?
    
-   _Interpretive Response:_ The staff believes it would generally be appropriate to apply the methodology described in the Interpretive Response to Question 2 above to nonemployee awards.
    
-   _F. Classification of Compensation Expense Associated with Share-Based Payment Arrangements_
    
-   _Facts:_ Company G utilizes both cash and share-based payment arrangements to compensate its employees and nonemployee service providers. Company G would like to emphasize in its income statement the amount of its compensation that did not involve a cash outlay.
    
-   _Question:_ How should Company G present in its income statement the non-cash nature of its expense related to share-based payment arrangements?
    
-   _Interpretive Response:_ The staff believes Company G should present the expense related to share-based payment arrangements in the same line or lines as cash compensation paid to the same employees or nonemployees. <sup class="ph sup">FN84</sup> The staff believes a company could consider disclosing the amount of expense related to share-based payment arrangements included in specific line items in the financial statements. Disclosure of this information might be appropriate in a parenthetical note to the appropriate income statement line items, on the cash flow statement, in the footnotes to the financial statements, or within MD&A.
    
    -   FN84 FASB ASC 718 does not identify a specific line item in the income statement for presentation of the expense related to share-based payment arrangements, with the exception of the guidance in FASB ASC paragraph [718-10-15-5A](https://asc.understandingaccounting.org/asc/718/10/#718-10-15-5A) on share-based payment awards granted to a customer.
        
-   _G. Removed by SAB 114_
    
-   _H. Removed by SAB 114_
    
-   _I. Capitalization of Compensation Cost Related to Share-Based Payment Arrangements_
    
-   _Facts:_ Company K is a manufacturing company that grants share options to its production employees. Company K has determined that the cost of the production employees' service is an inventoriable cost. As such, Company K is required to initially capitalize the cost of the share option grants to these production employees as inventory and later recognize the cost in the income statement when the inventory is consumed. <sup class="ph sup">FN85</sup>
    
    -   FN85 FASB ASC paragraph [718-10-25-2A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-2A).
        
-   _Question:_ If Company K elects to adjust its period end inventory balance for the allocable amount of share-option cost through a period end adjustment to its financial statements, instead of incorporating the share-option cost through its inventory costing system, would this be considered a deficiency in internal controls?
    
-   _Interpretive Response:_ No. FASB ASC Topic 718, Compensation—Stock Compensation, does not prescribe the mechanism a company should use to incorporate a portion of share-option costs in an inventory-costing system. The staff believes Company K may accomplish this through a period end adjustment to its financial statements. Company K should establish appropriate controls surrounding the calculation and recording of this period end adjustment, as it would any other period end adjustment. The fact that the entry is recorded as a period end adjustment, by itself, should not impact management’s ability to determine that the internal control over financial reporting, as defined by the SEC's rules implementing Section 404 of the Sarbanes-Oxley Act of 2002, <sup class="ph sup">FN86</sup> is effective.
    
    -   FN86 Release No. 34-47986, June 5, 2003, Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Period Reports.
        
-   _J. Removed by SAB 114_
    
-   _K. Removed by SAB 114_
    
-   _L. Removed by SAB 114_
    
-   _M. Removed by SAB 114_

##### [718-10-S99-2](https://asc.understandingaccounting.org/asc/718/10/#718-10-S99-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:04:29.503Z to 2026-09-10T01:04:29.503Z

Record version: sha256:e084a077dcc87135d0cd41a28b0f34403e1fe957babdcbc034aeec9afbbb19ad

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This SEC staff announcement provides the SEC staff's views regarding Escrowed Share Arrangements and the Presumption of Compensation.

-   The SEC Observer made the following announcement of the SEC staff's position on escrowed share arrangements. The SEC Observer has been asked to clarify SEC staff views on overcoming the presumption that for certain shareholders these arrangements represent compensation.
    
-   Historically, the SEC staff has expressed the view that an escrowed share arrangement involving the release of shares to certain shareholders based on performance-related criteria is presumed to be compensatory, equivalent to a reverse stock split followed by the grant of a restricted stock award under a performance-based plan. <sup class="ph sup">FN 1</sup>
    
-   When evaluating whether the presumption of compensation has been overcome, registrants should consider the substance of the arrangement, including whether the arrangement was entered into for purposes unrelated to, and not contingent upon, continued employment. For example, as a condition of a financing transaction, investors may request that specific significant shareholders, who also may be officers or directors, participate in an escrowed share arrangement. If the escrowed shares will be released or canceled without regard to continued employment, specific facts and circumstances may indicate that the arrangement is in substance an inducement made to facilitate the transaction on behalf of the company, rather than as compensatory. In such cases, the SEC staff generally believes that the arrangement should be recognized and measured according to its nature and reflected as a reduction of the proceeds allocated to the newly-issued securities. <sup class="ph sup">FN 2</sup>, <sup class="ph sup">3</sup>
    
-   The SEC staff believes that an escrowed share arrangement in which the shares are automatically forfeited if employment terminates is compensation, consistent with the principle articulated in paragraph [805-10-55-25(a)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-25).
    
    -   FN 1 Under these arrangements, which can be between shareholders and a company or directly between the shareholders and new investors, shareholders agree to place a portion of their shares in escrow in connection with an initial public offering or other capital-raising transaction. Shares placed in escrow are released back to the shareholders only if specified performance-related criteria are met.
        
    -   FN 2 The SEC staff notes that discounts on debt instruments are amortized using the effective interest method as discussed in Section 835-30-35, while discounts on common equity are not generally amortized.
        
    -   FN 3 Consistent with the views in paragraph [220-10-S99-4](https://asc.understandingaccounting.org/asc/220/10/#220-10-S99-4), SAB Topic 5.T., Accounting for Expenses or Liabilities Paid by Principal Stockholder(s), and paragraph [220-10-S99-3](https://asc.understandingaccounting.org/asc/220/10/#220-10-S99-3), SAB Topic 1.B., Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity, the SEC staff believes that the benefit created by the shareholder's escrow arrangement should be reflected in the company's financial statements even when the company is not party to the arrangement.