Share-Based Payment

Overview: ASC 718, Stock Compensation requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values (i.e., pro forma disclosure is no longer an alternative to financial statement recognition). ASC 718 utilizes a “modified grant-date” approach in which the fair value of an equity award is estimated on the grant date without regard to service or performance conditions. The fair value is recognized (generally amortized as compensation expense) over the requisite service period for all awards that vest. Compensation cost is not recognized for awards that do not vest because service or performance conditions are not satisfied.

Services: We have extensive experience applying ASC 718 to many different types of contracts, including those that require liability classification. We provide our clients with calculations of grant-date fair values using various types of valuation techniques. These techniques include Black-Scholes-Merton, both regular method and diluted method, Lattice Models and even Simulation Models. We also evaluate changes and modifications to awards, which may arise from time to time, for accounting consequences. We deliver robust white paper analysis and our calculations of fair value are always prepared under Statements on Standards for Valuation Services, published by the AICPA.

Case Study: A company was under review by the SEC for use of improper assumptions underlying their grant-date fair value measurements. The SEC challenged the volatility assumptions of the company’s Black-Scholes calculations. Since the report was the first such report that reflected fair value measurements under ASC 718, we reviewed alternative (and preferable) valuation methods and ultimately identified an alternative technique that, when properly applied, resulted in valuations not materially different than those previously published.