ASPE 3870

3870 Stock-based compensation and other stock-based

payments

SPECIFIC ITEMS

SECTION 3870

stock-based compensation and other stock-based payments

TABLE OF CONTENTS Paragraph

Purpose and scope .01-.06

Definitions .07

Employees .08

Transactions with non-employees .09-.23

Measurement date .14-.17

Period and method of

recognition

.18-.23

Transactions with employees .24-.51

Recognition and

measurement

.24-.29

Measurement objective and

date

.30-.31

Awards that call for

settlement by granting equity

instruments

.32-.36

Awards that call for

settlement in cash and other

assets

.37-.42

Recognition of compensation

cost

.43-.51

Number of instruments that

vest

.43-.47

Period and method of

recognition

.48-.49

Dividends and dividend

equivalents

.50-.51

Additional awards and modifications

of outstanding awards

.52-.55

Settlements of awards .56-.58

.59-.63

Accounting for options in the stock of

an affiliated enterprise

Equity-settled stock appreciation

rights

.64

Disclosure .65-.68

Effective date .69

Appendix

Illustrative examples

Purpose and scope

.01 This Section establishes standards for the recognition, measurement and disclosure of

stock-based compensation and other stock-based payments made in exchange for goods and

services. It applies to transactions, including non-reciprocal transactions, in which an

enterprise grants shares of common stock, stock options, or other equity instruments, or incurs

liabilities based on the price of common stock or other equity instruments. These transactions

may involve the enterprise's own equity instruments, those of a parent or subsidiary, those of a

subsidiary of the same parent, or those of an equity-accounted affiliate of one of the above.

This Section sets out a fair value based method of accounting and is required for all stockbased

payments.

.02 The accounting for stock-based compensation arrangements with employees or others

reflects the inherent rights and obligations, regardless of how those arrangements are

described. The accounting for stock-based compensation reflects the substantive terms, as

those terms are mutually understood by the enterprise and the recipients of the stock-based

payments.

.03 Generally, the written terms of a stock-based compensation arrangement provide the best

evidence of its substantive terms. However, an enterprise's past practice may indicate that the

substantive terms differ from the written terms, as follows:

a. An enterprise that grants a tandem award consisting of either a stock option or a cash

stock appreciation right is obligated to pay cash on demand if the choice is the employee's,

and the enterprise thus incurs a liability to the employee. In contrast, if the choice is the

enterprise's, it can avoid transferring its assets by choosing to settle in stock, and the

award qualifies as an equity instrument. However, if an enterprise that nominally has the

choice of settling awards by issuing stock generally settles in cash, or if the enterprise

generally settles in cash whenever an employee asks for cash settlement, the enterprise

probably is settling a substantive liability rather than repurchasing an equity instrument.

The substantive terms are the basis for the accounting.

b. An enterprise that grants stock options to employees and has a practice of buying back the

resultant shares within a short period of the exercise of the option (for example within six

months of exercise) is, in effect, settling a substantive liability and the arrangement is to be

accounted for as such.

c. When an enterprise grants an instrument to an employee with a nominal exercise price

that is a stock option in form, the nominal exercise price causes the instrument to be a

direct award in substance and it is accounted for as such.

.04 Cash-settled instruments shall be classified as liabilities and equity-settled instruments

shall be classified as equity.

.05 In general, the classification of financial instruments as debt or equity under this Section

is consistent with the classification requirements of FINANCIAL INSTRUMENTS, Section

3856. However, the accounting principles for stock-based compensation and other stockbased

payments are as specified in this Section.

.06 This Section does not apply to:

a. equity instruments granted by an acquiring enterprise as part of the purchase

consideration in a business combination that are accounted for in accordance with

BUSINESS COMBINATIONS, Section 1582;

b. related party transactions, other than stock-based compensation plans with a principal

shareholder, which are accounted for in accordance with RELATED PARTY

TRANSACTIONS, Section 3840 (management compensation arrangements are excluded

from the scope of Section 3840 and, therefore, management stock compensation

arrangements are included in this Section); or

c. contracts and obligations for stock-based payments in which the entity receives or

acquires goods or services under a contract within the scope of FINANCIAL

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