This Statement is a revision of FASB Statement No. This Statement supersedes APB Opinion No. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.

This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement as originally issued and EITF Issue No.

This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award with limited exceptions.

That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period usually the vesting period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met; those conditions are much the same as the related conditions in Statement A nonpublic entity, likewise, will measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of those instruments, except in certain circumstances.

A public entity will initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date.

Changes in fair value during the requisite service period will be recognized as compensation cost over that period.

A nonpublic entity may elect to measure its liability awards at their intrinsic value through the date of settlement. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments unless observable market prices for the same or similar instruments are available.

A New Approach To Equity Compensation

If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Excess tax benefits, as defined by this Statement, will be recognized as an addition to paid-in capital.

Cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows. The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in paid-in capital to which it can be offset.

The notes to financial statements of both public and nonpublic entities will disclose information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements.

Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This Statement requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards with limited exceptions.

Recognition of that compensation cost helps users of financial statements to better understand the economic transactions affecting an entity and to make better resource allocation decisions.

This Statement also will improve comparability by eliminating one of two different methods of accounting for share-based compensation transactions and thereby also will simplify existing U.

Eliminating different methods of accounting for the same transactions leads to improved comparability of financial statements because similar economic transactions will be accounted for similarly. The fair-value-based method in this Statement is similar to the fair-value-based method in Statement in most respects.

However, the following are the key differences between the two:.

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In addition, this Statement amends FASB Statement No. FASB Concepts Statement No. Recognizing compensation cost incurred as a result of receiving employee services in exchange for valuable equity instruments issued by the employer will help achieve that objective by providing more relevant and reliable information about the costs incurred by the employer to obtain employee services in the marketplace.

Establishing the fair-value-based method of accounting as the required method will increase comparability because similar economic transactions will be accounted for similarly, which will improve the usefulness of financial information.

Requiring the fair-value-based method also enhances the neutrality of the resulting financial reporting by eliminating the accounting bias toward using certain types of employee share options for compensation. Completeness is identified in Concepts Statement 2 as an essential element of representational faithfulness and relevance.

Employee services received in exchange for awards of share-based compensation qualify as assets, though only momentarily—as the entity receives and uses them—although their use may create or add value to other assets of the entity.

The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including preparers, auditors, and users of financial information.

In fulfilling that mission, the Board endeavors to determine that a proposed standard will fill a significant need and that the costs imposed to meet that standard, as compared with other alternatives, are justified in relation to the overall benefits of the resulting information. At the end of that process, the Board considers the accounting provisions in the aggregate and assesses the perceived benefits and the related perceived costs on a qualitative basis.

Superseded Standards

Several procedures were conducted before the issuance of this Statement to aid the Board in its assessment of the expected costs associated with implementing the required use of the fair-value-based accounting method.

Those procedures included a review of the comment letters received on the Exposure Draft, a field visit program, a survey of commercial software providers, and discussions with members of the Option Valuation Group that the Board established to provide information and advice on how to improve the guidance in Statement on measuring the fair value of share options and similar instruments issued to employees in compensation arrangements.

That group included valuation experts from the compensation consulting, risk management, investment banking, and academic communities.

The Board also discussed the issues in the project with other valuation experts, compensation consultants, and numerous other constituents. After considering the results of those cost-benefit procedures, the Board concluded that this Statement will sufficiently improve financial reporting to justify the costs it will impose. This Statement applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date.

The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date. As of the required effective date, all public entities and those nonpublic entities that used the fair-value-based method for either recognition or disclosure under Statement will apply this Statement using a modified version of prospective application.

Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under Statement for either recognition or pro forma disclosures.

For periods before the required effective date, those entities may elect to apply a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by Statement Nonpublic entities that used the minimum value method in Statement for either recognition or pro forma disclosures are required to apply the prospective transition method as of the required effective date.

Early adoption of this Statement for interim or annual periods for which financial statements or interim reports have not been issued is encouraged. FAF FASB GASB RSS Youtube Twitter Linked In. FASB, Financial Accounting Standards Board.

CONTACT US HELP ADVANCED SEARCH. Share-Based Payment Summary This Statement is a revision of FASB Statement No. Scope of This Statement This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.

Reasons for Issuing This Statement The principal reasons for issuing this Statement are: Addressing concerns of users and others. Improving the comparability of reported financial information by eliminating alternative accounting methods. The Board believes that similar economic transactions should be accounted for similarly that is, share-based compensation transactions with employees should be accounted for using one method.

Consistent with the conclusion in the original Statement , the Board believes that those transactions should be accounted for using a fair-value-based method.

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By requiring the fair-value-based method for all public entities, this Statement eliminates an alternative accounting method; consequently, similar economic transactions will be accounted for similarly. The Board believes that U. Converging with international accounting standards. This Statement will result in greater international comparability in the accounting for share-based payment transactions.

Converging to a common set of high-quality financial accounting standards for share-based payment transactions with employees improves the comparability of financial information around the world and makes the accounting requirements for entities that report financial statements under both U.

GAAP and international accounting standards less burdensome. Key Provisions of This Statement This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award with limited exceptions. However, the following are the key differences between the two: Public entities are required to measure liabilities incurred to employees in share-based payment transactions at fair value.

Nonpublic entities may elect to measure their liabilities to employees incurred in share-based payment transactions at their intrinsic value. Under Statement , all share-based payment liabilities were measured at their intrinsic value. In that situation, the entity will account for those instruments based on a value calculated by substituting the historical volatility of an appropriate industry sector index for the expected volatility of its share price.

Statement permitted a nonpublic entity to measure its equity awards using either the fair-value-based method or the minimum value method. Entities are required to estimate the number of instruments for which the requisite service is expected to be rendered. Statement permitted entities to account for forfeitures as they occur. Incremental compensation cost for a modification of the terms or conditions of an award is measured by comparing the fair value of the modified award with the fair value of the award immediately before the modification.

Costs and Benefits The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including preparers, auditors, and users of financial information. The Effective Dates and Transition Requirements of This Statement This Statement is effective: Technical Agenda Exposure Documents Comment Letters Recently Completed Projects Technical Inquiry Service.

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