A guide for accounting for stock compensation
Our guide on Accounting for stock compensation assists companies in understanding and analyzing the accounting for share-based payments with employees and nonemployees under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation. ASC 718 addresses the accounting for various types of equity-based awards issued as compensation for goods or services and includes stock options, restricted stock, restricted stock units, stock appreciation rights, phantom stock and profits interest, as well as any other awards based at least in part on the value of an entity’s equity.
Our comprehensive guide includes in-depth discussion and examples on:
- The scope of ASC 718
- The measurement of awards, including the measurement basis; grant date determination; and effect of market, performance and service conditions on measurement of compensation cost
- Various aspects of the recognition of compensation cost, including the requisite service period and nonemployee vesting period, service and performance conditions that affect vesting, service inception date determination, accounting for forfeitures, graded vesting employee awards, early exercise of stock options, dividends on share-based payments, capitalization of compensation costs, and clawback features
- The classification and accounting for liability awards, including when awards require liability classification and the measurement objective and measurement date for liability-classified awards
- The estimation of fair value for stock compensation awards, including fair value at grant date as well as describing valuation techniques
- Accounting for modifications, including modifications that change an award’s classification, inducements, equity restructurings, repurchases or cancellations of equity awards, cancellation and replacement of awards of equity instruments, and modifications of an award when the holder is no longer providing service
The guide does not address the income tax and earnings per share effect of share-based payments, nor does it address the accounting for employee stock ownership plans or employee share purchase plans.
The March 2026 edition of our guide has been updated to incorporate guidance from the following Accounting Standards Updates (ASUs) issued by the FASB:
- ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
- ASU 2025-04, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer
- ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements
This edition has also been updated to remove discussion of ASUs that are now effective—including ASUs 2018-07, 2019-08, 2021-07 and 2023-05—and address various issues encountered in practice. A summary of the significant changes made in this edition can be found in Appendix C of the guide.