FAR, Financial Accounting and Reporting

Sources for Stock Compensation

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's FAR lessons on Stock Compensation. The topic rests on ASC 718.

About this topic

Companies sometimes pay people in shares rather than in cash. ASC 718 is the rulebook for putting a cost on that.

The recipients are employees, directors, and outside service providers. The instruments are stock options, restricted stock, restricted stock units (RSUs), and similar awards, given instead of cash or in addition to it.

Key points

Stock compensation is measured at grant-date fair value and recognized as expense over the requisite service period.
Options are valued using an option-pricing model (Black-Scholes or lattice) with six inputs including expected term, volatility, and risk-free rate.
Forfeitures may be estimated at grant date or recognized as they occur; the total cost is the same either way.
A modification that increases fair value recognizes the incremental compensation cost; a cancellation accelerates unrecognized cost.

What the lessons cover

The measurement objective and award classification (ASC 718-10-30-2; 718-10-25-6 through 25-19A)
Measuring grant-date fair value: options and full-value awards (ASC 718-10-30-6)
Recognizing cost over the requisite service period (ASC 718-10-35-2)
Forfeitures: estimate or recognize as they occur (ASC 718-10-35-3)
Performance conditions versus market conditions (ASC 718-10-25-20; 718-10-30-14)
Modifications of awards (ASC 718-20-35-3)
Income tax effects (ASC 718-740-35-2)

Authoritative references

ASC 718-10-25-6 through 25-19A, the equity-or-liability classification questions, worked in order, stopping at the first that applies.
ASC 718-10-25-9 and 25-10, the conditions under which a share is equity: the clock starts at vesting, and six months or more is a reasonable period.
ASC 718-10-25-11 through 25-13, an option on shares redeemable under Topic 480 as a liability, and a liability where an additional factor is reflected in estimating fair value.
ASC 718-10-25-20 and 25-21, accrual of a performance condition only on the probable outcome, and reversal of cost on a failure to render service.
ASC 718-10-30-2, the fair-value-based method: for an equity-classified award, cost equals the grant-date fair value of the equity instruments issued.
ASC 718-10-30-6, the measurement objective: the grant-date fair value of the instruments the entity is obligated to issue once the grantee has delivered the requisite service.
ASC 718-10-30-9, 30-10 and 30-10A, a share has no time value, a restriction that continues after vesting goes into fair value, and the election to use the contractual term.
ASC 718-10-30-11, a restriction on a nonvested share exists because the right has not been earned yet, so it is not reflected.
ASC 718-10-30-14, of the three vesting conditions, a market condition is the only one included in fair value.
ASC 718-10-30-17 through 30-19, full-value awards measured at the share price, the terms restricted share and nonvested share, and a share with a restriction that outlives vesting measured below that price.
ASC 718-10-30-27, awards excluded from grant-date fair value for the same forfeitability reason.
ASC 718-10-35-1A, 35-1D and 35-1F, nonemployee awards: cost recognized as the goods or services are received, the parallel election, and the same equity-or-liability test for the credit.
ASC 718-10-35-2 and 35-3, recognition over the requisite service period, and no reversal where an award expires unexercised after the service condition was satisfied.
ASC 718-10-35-8, the policy election between the two methods for graded vesting of awards with only service conditions.
ASC 718-20-35-3, modifications of awards.
ASC 718-20-35-7 and 35-9, cash paid to repurchase an award, charged to equity up to fair value, and a cancellation without a replacement accounted for as a repurchase for no consideration.
ASC 718-30-35-3 and 35-4, liability awards remeasured to fair value at every reporting date until settlement, and the election to measure at intrinsic value; see also ASC 718-30-30-2.
ASC 718-740-35-2, income tax effects.

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.