BAR, Business Analysis and Reporting

Sources for Stock Compensation (Share-Based Payments)

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's BAR lessons on Stock Compensation (Share-Based Payments). The topic rests on ASC 718.

About this topic

Share-based payment is compensation delivered in the entity's own stock rather than in cash. ASC 718 is the Topic that measures it. An award is priced once, on the day it is granted, and that price becomes compensation expense across the period the holder has to keep working to earn it.

Period charge = (N x F_now x f_now) - (N x F_before x f_before)

Key points

Stock options, restricted stock, and RSUs are measured at grant-date fair value and expensed over the service period.
The Black-Scholes model values options using six inputs: stock price, exercise price, expected term, volatility, risk-free rate, and dividends.
Classification as equity or liability depends on whether settlement will be in shares or cash.
Performance conditions affect the number of awards expected to vest but do not change the grant-date fair value per unit.

What the lessons cover

Grant-date fair value drives the cost
Three condition types behave differently
Equity versus liability classification
Modifications
The ASC 480 bridge: what Topic 718 borrows and what it keeps
Decomposing a liability award's period charge
Equity, liability, and the ratios a BAR question moves
The four modification types

Authoritative references

Classification:

ASC 718-10-25-6 through 25-19A, the classification test in full, including the six-month reasonable-period line for a puttable share.
ASC 718-10-25-8, the bridge paragraph that applies the classification criteria of Section 480-10-25 unless ASC 718-10-25-8 through 25-19A require otherwise.
ASC 718-10-25-9 through 25-12 and 25-15, the reasonable-period test, an option on a share that is a liability under Topic 480, and an entity required to pay cash if a contingent event occurs.
ASC 718-10-35-9 through 35-14, awards that may become subject to other guidance, including modifications when the holder is no longer an employee and the confirmation that classification, once determined, drives recognition and measurement.
ASC 480-10-15-3 and 15-5, the scope limit to freestanding instruments, and the exclusion of a feature embedded in a financial instrument that is not a derivative.
ASC 480-10-25-4, 25-6 and 30-2, the mandatorily redeemable rule with an only-upon-liquidation exception, and the reclassification measured initially at fair value.
ASC 718-10-25, awards remeasured to fair value each reporting date through earnings until settlement, with ASC 480.

Measurement and recognition:

ASC 718-10-30-6 and 30-12, the grant-date fair value of the instruments the entity is obligated to issue, and the true-up and complete reversal if the award is forfeited.
ASC 718-10-30-14, 30-15 and 30-27, a market condition as a definition rather than an exception, and conditions that affect something other than vesting.
ASC 718-10-25-20 and 25-21, accrual on the probable outcome, and the recognition condition met once the requisite service is rendered.
ASC 718-10-35-1D and 35-3, the policy election to recognize the effect of forfeitures when they actually occur.
ASC 260-10-45-29A, the earnings per share link back to ASC 718-10-35-1D and 35-3.

Modifications and liability awards:

ASC 718-20-35-2A and 35-3, no modification accounting where fair value, vesting conditions, and classification are all unchanged, and the incremental fair value measured immediately after against immediately before.
ASC 718-20-35-3A through 35-6, the forfeiture policy carried into the modified award, a modification that changes classification, a short-term inducement, and an equity restructuring or business combination.
ASC 718-30-35-2 and 35-3, a liability award remeasured at each reporting date and recognized over the requisite service period, with all changes in the income statement.

Disclosure and tax:

ASC 718-10-50-1, 50-2 and 50-2A, the disclosure objectives, the minimum information, the cash received from exercise, and the tax benefit realized.
ASC 718-740-35-2, the income tax accounting.
ASU 2016-09, ASU 2017-09 and ASU 2018-07, the election for forfeitures, the scope of modification accounting, and the extension to nonemployee awards.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.