ASC 718 compliant fair value measurements for all types of equity awards.
ASC 718 requires companies to measure and recognize compensation expense for all share-based payment transactions, including stock options, restricted stock units (RSUs), stock appreciation rights (SARs), and performance-based awards.
The fair value of equity awards must be measured at the grant date using appropriate valuation techniques. For awards with performance conditions, market conditions, or other complexities, sophisticated modeling may be required.
For private companies, this intersects with 409A valuation. While 409A determines exercise price (tax compliance), ASC 718 determines the fair value for GAAP expense. Often the same underlying valuation informs both, but the purposes and some conclusions differ.
Whenever you grant equity compensation with financial reporting requirements
Each option grant requires fair value measurement at grant date for expense recognition over the vesting period.
Awards with market conditions (TSR, stock price targets) require Monte Carlo simulation or similar techniques.
Modifying existing awards (repricing, extending terms, changing vesting) triggers remeasurement and potential additional expense.
Going public requires historical stock comp expense to be properly measured—often retroactively for cheap stock issues.
Auditors scrutinize stock compensation calculations—proper documentation and methodology are essential.
Acquiring companies often need to remeasure target company awards as replacement awards with new fair values.
Appropriate methodology for each award type
We review award agreements to understand terms—vesting conditions, performance metrics, market conditions, and forfeiture provisions.
We select appropriate models—Black-Scholes for vanilla options, lattice models for complex features, Monte Carlo for market conditions.
We estimate key inputs: expected volatility (often challenging for private companies), expected term, risk-free rate, and dividend yield.
We calculate grant-date fair value per share/unit, which becomes the basis for expense recognition.
We provide comprehensive documentation of methodology, inputs, and calculations for audit support.
We're available to support auditor questions and assist with subsequent grants using consistent methodology.
409A determines the minimum exercise price for tax compliance (common stock FMV). ASC 718 determines fair value of the option itself for GAAP expense (includes time value). Different purposes, often same underlying equity value.
We use peer company volatility, adjusted for size, leverage, and stage. We document the peer selection and any adjustments for auditor review.
For market conditions (stock price targets, TSR), we use Monte Carlo simulation. For non-market performance conditions, we use probability-weighted scenarios with the underlying option model.
Modifications require comparing the fair value immediately before and after. Any incremental value is recognized as additional expense. Some modifications can trigger full remeasurement.
SEC scrutinizes option grants in the 12-24 months before IPO filing. We help ensure contemporaneous valuations are defensible or assist with retrospective analysis.
Yes. ESPP with look-back features require specific modeling approaches to capture the value of embedded options.
Get audit-ready stock comp valuations.