What does measurement date mean on the CPA exam?
Last reviewed
Measurement date. The date at which an amount is fixed for accounting. Which date it is varies by topic, and choosing an incorrect one is a common exam trap.
Worked example
At the start of Year 1 a company awards its engineers 10,000 stock options that vest only if the engineers stay three more years, and it expects every one to vest. The options are classified as equity, and their fair value on the grant date is $12 each. By the end of Year 1 an identical option is worth $15.
What compensation cost does the company recognize for Year 1?
| Total cost, fixed at the grant date for an equity award10,000 x 12 | 120,000 |
| Year 1 share of the three-year service period120,000 / 3 | 40,000 |
Answer: $40,000 of compensation cost for Year 1. The rise to $15 changes nothing, because an award classified as equity takes its value on the grant date and keeps it.
The trap: Using the year-end fair value, which gives $50,000. That is the right method only for a liability-classified award, such as cash-settled stock appreciation rights, which is remeasured at every reporting date until settlement. The measurement date depends on the classification.
Based on ASC 718-10-30-2; ASC 718-30-35-3.
Related terms
- balance sheet date: The last day of the reporting period.
- report release date: The date the auditor grants the entity permission to use the report.
- acquisition-date fair value: What something was worth on the day control changed hands.
- monetary penalty: A fixed dollar amount imposed for a specific failure, separate from the tax owed and separate from interest.