Objective

The objective of accounting for transactions under share-based payment arrangements with employees is to recognize in the financial statements the employee services received in exchange for equity instruments issued or liabilities incurred and the related cost to the entity as those services are consumed.

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Scope

1. The guidance in the ASC 718 Compensation—Stock Compensation Topic applies to all entities that enter into share-based payment transactions with employees.

 

2. The guidance in the ASC 718 Compensation—Stock Compensation Topic applies to all share-based payment transactions in which an entity acquires employee services by issuing (or offering to issue) its shares, share options, or other equity instruments or by incurring liabilities to an employee that meet either of the following conditions:

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a) The amounts are based, at least in part, on the price of the entity’s shares or other equity instruments. (The phrase ‘at least in part' is used because an award of share-based compensation may be indexed to both the price of an entity’s shares and something else that is neither the price of the entity’s shares nor a market, performance, or service condition.)

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b) The awards require or may require settlement by issuing the entity’s equity shares or other equity instruments.

 

3. Share-based payments awarded to an employee of the reporting entity by a related party or other holder of an economic interest in the entity as compensation for services provided to the entity are share-based payment transactions to be accounted for under this Topic unless the transfer is clearly for a purpose other than compensation for services to the reporting entity. The substance of such a transaction is that the economic interest holder makes a capital contribution to the reporting entity, and that entity makes a share-based payment to its employee in exchange for services rendered.

 

4. The guidance in this Topic does not apply to the following payment transactions:

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a) Share-based transactions for other than employee services

 

5. ASC 805 Business Combinations provides guidance on determining whether share-based payment awards issued in a business combination are part of the consideration transferred in exchange for the acquiree, and therefore in the scope of ASC 805, or are for continued service to be recognized in the post combination period in accordance with ASC 718.

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