8.1 Scope
ASC 718-50
General
05-1 This Subtopic provides guidance to entities that use employee share purchase plans. The entity must first determine whether the plan is compensatory or noncompensatory. This is determined by the terms of the plan (see paragraphs 718-50-25-1 through 25-2). A plan with an option feature, for example a look-back feature, is considered compensatory. For a compensatory plan the calculation of the amount of the compensation is important (see Section 718-50-55).
Overall Guidance
15-1 This Subtopic has its own discrete scope, which is separate and distinct from the pervasive scope for this Topic as outlined in Section 718-10-15.
An ESPP is a plan that gives employees the ability to purchase an entity’s shares, typically at a discount. Generally, employees contribute to the ESPP through payroll deductions over a period between the enrollment date and purchase date (referred to as the purchase period). The accumulated payroll withholdings are then used to purchase the entity’s shares on behalf of the participating employees.
The guidance on share-based payment transactions with ESPPs is contained in ASC 718-50 and is separate and distinct from the general requirements in ASC 718, as outlined in ASC 718-10-15.
An ESPP may be considered compensatory or noncompensatory. The distinction is
significant because it affects whether an entity recognizes compensation cost for
the ESPP. To qualify as a noncompensatory plan and, therefore, not give rise to the
recognition of compensation cost, an ESPP must meet certain criteria, which are
discussed in Section
8.2. However, many plans are compensatory because the discount
offered to employees exceeds the limits permissible under ASC 718.