ASC 718 Stock Comp Expensing FAQ
Last verified Oct 2, 2026 · Reviewed by Value8 valuation team
What is ASC 718?
ASC 718 (Compensation, Stock Compensation) is the US GAAP accounting standard that requires a company to measure the fair value of equity it grants to employees and other recipients on the grant date, and recognize that value as compensation expense over the period the recipient earns it. IFRS 2 is the equivalent international standard.
Do private companies need to comply with ASC 718?
Yes. ASC 718 applies to any US GAAP filer that grants stock-based compensation, public or private; there's no private-company exemption from the core recognition requirement. Private companies do get specific accounting-policy elections (for example, the SEC's simplified method for estimating expected term), and sometimes delayed adoption windows for brand-new standards, but the underlying obligation to expense equity grants applies as soon as a private company starts granting them.
How is the stock-based compensation expense calculated?
In two steps. First, measure the award's fair value on the grant date: Black-Scholes (or a lattice/Monte Carlo model for awards with a market condition) for options, or grant-date fair market value minus any amount paid for full-value awards like RSUs and restricted stock. Second, attribute that fair value as expense over the requisite service period, using straight-line or graded (FIN 28) attribution, adjusted for forfeitures and any modifications along the way.
What is grant-date fair value, and why Black-Scholes?
Grant-date fair value is the award's value on the day it's granted, which is what gets expensed, not its value when it later vests or is exercised. Black-Scholes is the standard closed-form option-pricing model used for most options: it takes the stock price, exercise price, expected term, risk-free rate, volatility, and dividend yield as inputs and returns a per-share value. For awards whose vesting depends on a stock-price or total-shareholder-return target (a market condition), a lattice or Monte Carlo model is used instead, since Black-Scholes can't price that kind of path-dependent trigger.
Straight-line vs. graded vesting attribution: what's the difference?
Straight-line attribution recognizes an award's total fair value evenly over its vesting period, regardless of how the vesting schedule is actually shaped. Graded (FIN 28) attribution instead treats each vesting tranche as its own sub-award, amortized from grant date to that tranche's own vest date, which front-loads more expense into earlier periods for front-loaded vesting schedules. Either method must still satisfy ASC 718-10-35-8's floor: cumulative recognized expense at any date can never be less than the grant-date fair value of the portion already vested at that date, which can require a catch-up entry when vesting is front-loaded (e.g., a large first-year cliff).
How are forfeitures handled under ASC 718?
It depends on why the award failed to vest. A service-condition failure (the holder leaves before vesting) reverses the unvested portion's expense pro-rata. A performance-condition failure reverses all previously recognized expense for that award to zero. A market-condition failure does not reverse anything: the outcome was already priced into the grant-date fair value. Partial achievement of a performance condition trues expense up or down to the actual result. Companies also estimate an overall forfeiture rate upfront and true it up against actual outcomes as awards vest or forfeit over time.
What is a modification under ASC 718, and how is it different from a change in estimate?
A modification is a change to an existing award's terms, for example, extending the exercise window, accelerating vesting, repricing the strike price, or changing a performance target. It's measured by computing the award's incremental fair value (the difference between its fair value immediately before and immediately after the change) and recognizing that incremental cost going forward. A pure change in the probability of a performance condition being met (e.g., a target moving from improbable to probable with no change to the award's terms) is a change in estimate, not a modification, and is accounted for differently; conflating the two is a common source of error.
What disclosures does ASC 718 require?
ASC 718-10-50-2 requires a specific set of footnote items, typically presented together in a single stock-based-compensation note (often labeled "Note 10" or similar, though numbering varies by company): a description of the arrangement(s), an options activity rollforward with weighted-average exercise price and remaining contractual term, weighted-average grant-date fair value of awards granted, total intrinsic value (exercised, outstanding, exercisable), the valuation assumptions used, total compensation cost recognized, the tax effect (deferred tax asset movement and realized tax benefit), cash received from exercises and cash used to settle equity, and unrecognized compensation cost with its weighted-average recognition period.
ASC 718 vs. IFRS 2: what's actually different?
The core model (grant-date fair value, service-period attribution) is the same. The differences that matter in practice: IFRS 2 requires immediate full acceleration when a non-vesting condition fails by the employee's own choice (¶28A), where GAAP treats that the same as an ordinary service failure; the two frameworks classify modifications using related but distinct frameworks (GAAP's Type I to IV vs. IFRS's beneficial/non-beneficial test); and the required disclosure tables differ in structure, including an equity-settled/cash-settled expense split IFRS 2 requires (¶45(d)) that GAAP's disclosure list doesn't ask for in the same form.
Can I do ASC 718 expensing in a spreadsheet?
For a small number of simple, service-only option grants, yes, as a starting point. It gets hard to sustain as grant count grows: picking the correct fair-value method per award type, applying the vested-floor catch-up correctly under front-loaded vesting, handling five different forfeiture-event types correctly (and differently under GAAP vs. IFRS), classifying modifications instead of misreading them as changes in estimate, and keeping every quarter's footnote figures (rollforwards, intrinsic value, cash received) tied to the same underlying grant data without re-keying it, are all places a manually maintained spreadsheet tends to drift from the standard's requirements over time.
Does a 409A valuation feed into ASC 718?
Yes. For a private company, the stock-price input to the Black-Scholes calculation is the common-stock fair market value from the company's current IRC §409A valuation (or equivalent appraisal), since private stock has no public trading price to use directly. Keeping the 409A FMV, the cap table, and the ASC 718 expense calculation in the same system means that figure flows straight into the expense math without being re-entered or re-derived.
Is ASC 718 expensing a service Value8 performs, or software customers run themselves?
Software. Value8's ASC 718 / IFRS 2 module (part of the Ledger product) is self-service: the customer runs the expense calculations, reviews the schedules, and executes the quarterly period close inside the application. This is different from Value8's 409A valuation offering, which is a done-for-you appraisal service where Value8's appraisers deliver a signed report. See how Value8 handles ASC 718 expensing for the product workflow.
Does Value8's ASC 718 module support both GAAP and IFRS 2?
Yes. The module has a GAAP/IFRS framework toggle, and framework-specific logic (forfeiture treatment, modification classification, and disclosure requirements) runs independently per framework, so a company reporting under both gets consistent figures from the same underlying grant data rather than a second parallel calculation.
General information about ASC 718 / IFRS 2 and common accounting practice, not accounting or audit advice. Confirm specifics with your accountant or auditor.