The Stock Compensation Accounting is addressed in FASB Codification at the FASB ASC 718-10 (Compensation- The Stock Compensation).
View FASB ASC 718-10-10 (Compensation The Stock Compensation, the Overall and the Objectives)
10-1: The transactions accounting objectives under the arrangements with employees regarding the share based payment is recognizing the service received from the employees by offering them issued equity instruments or in exchange of the incurred liabilities as well as costs related to that entity as the services gets consumed. The topic applies the two terms; payment and compensation to refer to those considerations paid for the employee services:
718: Compensation – The Stock Compensation
10: Overall
10: Objectives
General
10-2: The topic requires recognition of the costs incurred in all transactions related to the share based payment in financial statements. Further, it establishes the fair value as the objective of measure in the payments’ accounting while requiring application of a fair value based evaluation method in the transactions’ accounting by all entities. However, it excepts the application regarding the equity instruments that employees hold in the employee stock ownership plans.
FASB ASC 718-50-25
25-1: A share purchase arrangement for employees satisfying the following criterion does not incur recognizable compensation cost meaning that it is non-compensatory.
The arrangement satisfies either of the below conditions
The plans terms are not more favorable than those of same class and accessible to all holders. It should be noted that for plans that are subject to the share purchase arrangement, and involving equity shares exclusively designed for and held by only the former or current employees and/or their beneficiaries have their compensatory dependent on the arrangement’s terms.
Any market price purchase discount is not in excess of the amount of the share as per the issuance cost that would otherwise have been paid for raising significant capital through a public offering. A 5% purchase discount or less on the market price is qualified for consideration for compliance with this term even without any further justification. However, such a discount greater than 5% and which is not justifiable under this term results a compensation cost equivalent of the discount amount. It should be noted that justification of such discount exceeding 5% shall need to reassess on an annual basis at the least, and not later than the fiscal years’ first share offer, whether the discount is still justifiable in line with this paragraph.
It is of importance to note that all employees meeting the limited qualifications for employment are allowed to participate on equitable basis.
The arrangement does not incorporate option features outside those stipulated below:
Employees are allowed a short duration to enroll for the plan, but not in excess of 31 days after the fixing of the purchase price.
The basis of the purchase price is only the shares’ market price at the purchase date and employees are allowed cancellation of their participation prior to the purchase date obtaining a refund equivalent of the previously paid amounts.
