ASC 718 Compensation—Stock Compensation

ASC 718-10 notes that it “provides general guidance related to share-based payment arrangements with employees.”

ASC 718-20 notes that it provides guidance for share-based payment awards that are classified as equity. It also notes that it is “interrelated with Subtopic 718-10, which contains guidance applicable to instruments classified as either equity or liabilities issued in share-based payment transactions.”

ASC 718-30 notes that it provides guidance for share-based payment awards that are classified as liability, but it is also interrelated to ASC 718-10 that contains guidance on awards classified as liabilities and equity.

ASC 718-40 includes guidance on employee stock ownership plans and notes the following purposes for entities using these plans:

1. To fund a matching program for a sponsor’s 401(k) saving plan, formula-based profit-sharing plan, and other employee benefits
2. To raise new capital or to create a marketplace for the existing stock
3. To replace lost benefits from the termination of other retirement plans or provide benefits under postretirement benefit plans, particularly medical benefits
4. To be part of the financing package in leveraged buy-outs
5. To provide a tax-advantaged means for owners to terminate their ownership
6. To be part of a long-term program to restructure the equity section of a plan sponsor’s balance sheet
7. To defend the entity against hostile takeovers.

ASC 718-50 notes that it provides guidance to entities that have employee share purchase plans, but entities “must first determine whether the plan is compensatory or noncompensatory.”

ASC 718-740 notes the following: