Under US Generally Accepted Accounting Principles (GAAP), the accounting for stock-based compensation expense is governed by the Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), “Share-Based Payment.” International Financial Reporting Standards (IFRS) have a similar standard for stock-based compensation, IAS 2, “Inventories.” However, there are some key differences between the two sets of standards when it comes to accounting for stock-based compensation.
Some of the key differences include:
- Measurement: Under US GAAP, the grant-date fair value of the stock-based award is used to measure the compensation cost to be recognized over the award’s vesting period. IFRS, on the other hand, allows either the grant-date fair value or the intrinsic value of the award (the difference between the stock price and the exercise price of the award) to be used as the measure of compensation cost.
- Vesting Period: US GAAP requires that the compensation cost be recognized over the vesting period of the award, while IFRS only requires that the vesting period be taken into account when determining the amount of compensation cost to be recognized.
- Modification of Awards: Under US GAAP, if the terms of an award are modified, the compensation cost is re-measured and the excess of the new grant-date fair value over the original grant-date fair value is recognized as additional compensation cost. IFRS, on the other hand, only requires that the compensation cost be re-measured if the modification results in the award becoming more economically beneficial to the recipient.
- Classification: US GAAP requires that stock-based compensation be classified as either an equity award or a liability award, based on the terms and conditions of the award. IFRS does not have this classification requirement.
In conclusion, while both US GAAP and IFRS have similar goals when it comes to accounting for stock-based compensation, there are some key differences in the details of how the compensation cost is measured and recognized. Companies should carefully consider the requirements of both sets of standards when preparing their financial statements.