1.5 Measurement

Share-based payment transactions are measured on the basis of the fair value (or in certain situations, the calculated value or intrinsic value) of the equity instrument issued. As noted in Section 1.1, ASC 718 refers to a “fair-value-based” method for measuring the value of the share-based payment. Conceptually, the fair value determined under this method is not fair value as defined in ASC 820, which explicitly excludes share-based payments from its scope. Although fair value measurement techniques are used in the fair-value-based measurement method, it specifically excludes the effects of vesting conditions and other types of features (e.g., clawback provisions) that would be included in a fair value measurement that is based on ASC 820. Therefore, when the term “fair value” is used in ASC 718 and in this Roadmap, it refers to a fair-value-based measurement determined in accordance with the requirements of ASC 718.

For equity-classified awards, compensation cost is recognized over the employee’s requisite service period or the nonemployee’s vesting period on the basis of the fair-value-based measure of the awards on the grant date. The measurement of such awards is generally fixed on the grant date. By contrast, liability-classified awards are remeasured at their fair-value-based measurement as of each reporting date until settlement. That is, changes in the fair-value-based measure of the liability at the end of each reporting period are recognized as compensation cost, either (1) immediately or (2) over the employee’s requisite service period or the nonemployee’s vesting period. The total compensation cost ultimately recognized for liability-classified awards on the settlement date will generally equal the settlement amount (e.g., the amount of cash paid to settle the award).

Nonpublic entities can use certain practical expedients as a substitute for a fair-value-based measurement. See further discussion in Section 1.7. See Chapter 4 for additional guidance on the measurement of share-based payment awards.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.