7.1 Fair-Value-Based Measurement
ASC 718-10
55-9 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.
ASC 718-30
Measurement Objective and Measurement Date
Public Entity
30-1 At the grant date, the measurement objective for liabilities incurred under share-based compensation arrangements is the same as the measurement objective for equity instruments awarded to grantees as described in paragraph 718-10-30-6. However, the measurement date for liability instruments is the date of settlement.
Nonpublic Entity
30-2 A nonpublic entity shall
make a policy decision of whether to measure all of its
liabilities incurred under share-based payment arrangements
(for employee and nonemployee awards) issued in exchange for
distinct goods or services at fair value or at intrinsic
value. However, a nonpublic entity shall initially and
subsequently measure awards determined to be consideration
payable to a customer (as described in paragraph
606-10-32-25) at fair value.
Measurement
35-1 The fair value of liabilities incurred in share-based payment transactions shall be remeasured at the end of each reporting period through settlement.
35-2 Changes in the fair value
(or intrinsic value for a nonpublic entity that elects that
method) of a liability incurred under a share-based payment
arrangement issued in exchange for goods or services that
occur during the employee’s requisite service period or the
nonemployee’s vesting period shall be recognized as
compensation cost over that period. The percentage of the
fair value (or intrinsic value) that is accrued as
compensation cost at the end of each period shall equal the
percentage of the requisite service that has been rendered
for an employee award or the percentage that would have been
recognized had the grantor paid cash for the goods or
services instead of paying with a nonemployee award at that
date. Changes in the fair value (or intrinsic value) of a
liability issued in exchange for goods or services that
occur after the end of the employee’s requisite service
period or the nonemployee’s vesting period are compensation
cost of the period in which the changes occur. Any
difference between the amount for which a liability award
issued in exchange for goods or services is settled and its
fair value at the settlement date as estimated in accordance
with the provisions of this Subtopic is an adjustment of
compensation cost in the period of settlement. Example 1
(see paragraph 718-30-55-1) provides an illustration of
accounting for a liability award issued in exchange for
service from the grant date through its settlement.
Public Entity
35-3 A public entity shall measure a liability award under a share-based payment arrangement based on the award’s fair value remeasured at each reporting date until the date of settlement. Compensation cost for each period until settlement shall be based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered for an employee award or the percentage that would have been recognized had the grantor paid cash for the goods or services instead of paying with a nonemployee award at the reporting date) in the fair value of the instrument for each reporting period. Example 1 (see paragraph 718-30-55-1) provides an illustration of accounting for an instrument classified as a liability using the fair-value-based method.
Nonpublic Entity
35-4
Regardless of the measurement method
initially selected under paragraph 718-10-30-20, a nonpublic
entity shall remeasure its liabilities under share-based
payment arrangements at each reporting date until the date
of settlement. The fair-value-based method is preferable for
purposes of justifying a change in accounting principle
under Topic 250. Example 1 (see paragraph 718-30-55-1)
provides an illustration of accounting for an instrument
classified as a liability using the fair-value-based method.
Example 2 (see paragraph 718-30-55-12) provides an
illustration of accounting for an instrument classified as a
liability using the intrinsic value method. A nonpublic
entity shall subsequently measure awards determined to be
consideration payable to a customer (as described in
paragraph 606-10-32-25) at fair value.
The measurement objective for liability-classified awards is the same as that
for equity-classified awards. (See Chapter 4 for a detailed discussion of how the fair-value-based
measure of share-based payment award is determined.) For public entities,
liability-classified awards must be measured at their fair-value-based amount, which
is the same measurement method required for equity-classified awards. However, since
the measurement date for liability-classified awards is the date of settlement
rather than the grant date for equity-classified awards, liability-classified awards
are remeasured at their fair-value-based amount at the end of each reporting period
until settlement. As discussed in Section 4.13.3 and
Section 7.3, nonpublic entities can make a policy decision to elect,
as an alternative to a fair-value-based measure, to measure liability-classified
awards issued in exchange for goods or services at intrinsic value.
If a nonpublic entity elects to measure its liability-classified awards issued
in exchange for goods or services at intrinsic value, those awards must still be
remeasured at the end of each reporting period until settlement. However, the use of
the intrinsic-value method reduces the burden of calculating a fair-value-based
measure for options and similar instruments at the end of each reporting period. For
example, if an entity grants SARs that it classifies as a liability and calculates
by using a fair-value-based measurement, it will be required to use a valuation
technique such as an option pricing model and update the assumptions at the end of
each reporting period. See Section
4.9 for a more detailed discussion of selecting a valuation
technique.