1.1 Objective

ASC 718-10

10-1 The objective of accounting for transactions under share-based payment 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.

10-2 This Topic requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This Topic establishes fair value 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.

To incentivize employee and nonemployee performance and align the interests of grantees and shareholders, entities often grant share-based payment awards such as stock options, restricted stock,1 RSUs, SARs, and other equity-based instruments in exchange for goods or services or consideration paid to a customer. Such awards are a form of compensation. One of ASC 718’s objectives is for entities to recognize the cost of that compensation in their financial statements as the goods or services associated with the awards are provided. The amount of cost to recognize is generally based on the fair value of the share-based payment arrangement, and ASC 718 requires entities to apply a “fair-value-based measurement method” when accounting for such arrangements.2

Footnotes

ASC 718 refers to restricted stock (and RSUs) as nonvested shares (and nonvested share units). See Sections 3.3, 4.7, and 4.8 for a discussion of the differences between a nonvested share and a restricted share.

See Sections 1.7 and 4.13 for a discussion of exceptions for nonpublic entities to the fair-value-based measurement requirement.

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