ASPE Section 3870
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Stock-based Compensation and Other Stock-based Payments
Stock-based Compensation and Other Stock-based Payments is part of the Accounting Standards for Private Enterprises (ASPE).
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Conceptual Framework Linkage
Recognizing the cost of equity-settled and cash-settled employee compensation
ASPE Section 3870 governs the RECOGNITION and MEASUREMENT of STOCK-based compensation and OTHER stock-BASED payments – AWARDS of SHARES, share OPTIONS, or OTHER equity INSTRUMENTS granted TO employees or OTHERS in EXCHANGE for GOODS or SERVICES. THE Section INCLUDES a PRACTICAL accommodation RELEVANT specifically TO private ENTERPRISES lacking a READILY observable MARKET price FOR their OWN equity (Section 6).
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Scope
Equity-settled and cash-settled stock-based arrangements
This Section applies to STOCK options, STOCK appreciation RIGHTS, restricted STOCK, and OTHER arrangements UNDER which an ENTERPRISE compensates EMPLOYEES or OTHERS through EQUITY instruments OR payments BASED on the VALUE of ITS equity.
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The General Approach – the Fair Value Based Method
Measuring compensation cost at the grant-date fair value
COMPENSATION cost is GENERALLY measured AT the FAIR value OF the EQUITY instruments GRANTED, DETERMINED using an OPTION-pricing model (e.g. BLACK-Scholes) OR OTHER appropriate VALUATION technique – BROADLY consistent WITH the GENERAL fair-VALUE-based approach ALSO used INTERNATIONALLY.
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Recognition Over the Vesting Period
Expense spread over the period services are rendered
COMPENSATION cost is RECOGNIZED over the VESTING period – the PERIOD during WHICH the EMPLOYEE must PROVIDE service BEFORE the AWARD becomes UNCONDITIONALLY the EMPLOYEE'S own – REFLECTING the FACT that the AWARD compensates FOR service RENDERED over THAT entire PERIOD, RATHER than SOLELY at the GRANT date.
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Awards to Non-Employees
Measured at the fair value of goods or services received, where more reliable
FOR awards GRANTED to NON-employees (e.g. CONSULTANTS or OTHER service PROVIDERS), the TRANSACTION is MEASURED at the FAIR value OF the GOODS or SERVICES received, WHERE that IS more RELIABLY measurable THAN the fair VALUE of the EQUITY instruments GRANTED.
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A Practical Accommodation for Enterprises Without Observable Equity Values
Addressing the genuine practical challenge private enterprises face
MANY private ENTERPRISES lack a READILY determinable MARKET price FOR their OWN equity INSTRUMENTS – MAKING application OF a STANDARD option-PRICING model GENUINELY more DIFFICULT than FOR a PUBLICLY traded ENTITY with an OBSERVABLE share PRICE. ASPE addresses THIS practical CHALLENGE by ALLOWING closely-HELD enterprises, IN appropriate CIRCUMSTANCES, to APPLY simplified OR alternative valuation TECHNIQUES (SUCH as an INTRINSIC-value-based approach, MEASURING compensation COST based on the DIFFERENCE between an APPRAISED or ESTIMATED value OF the underlying STOCK and the EXERCISE price) WHERE a MORE sophisticated OPTION-pricing model WOULD otherwise be IMPRACTICABLE to APPLY reliably – a GENUINELY practical ACCOMMODATION consistent WITH the BROADER cost-CONSCIOUS philosophy RUNNING throughout ASPE.
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Forfeitures and Modifications
Reversing expense for forfeited awards, incremental cost for modifications
WHERE an AWARD is FORFEITED before VESTING (e.g. an EMPLOYEE leaves), PREVIOUSLY recognized COMPENSATION cost is REVERSED. WHERE an AWARD'S terms ARE subsequently MODIFIED in a WAY that INCREASES its FAIR value, the INCREMENTAL fair VALUE is RECOGNIZED as ADDITIONAL compensation COST, over the REMAINING vesting PERIOD.
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Stock Appreciation Rights and Other Cash-Settled Awards
A liability, remeasured until settlement
FOR cash-SETTLED awards (SUCH as stock APPRECIATION rights, ENTITLING the HOLDER to a CASH payment BASED on the INCREASE in the ENTERPRISE'S own SHARE value), a LIABILITY is RECOGNIZED and REMEASURED at EACH reporting DATE until SETTLEMENT, WITH changes in FAIR value recognized WITHIN compensation COST.
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Worked Example – Expensing an Option Grant Under the Fair Value Method
Spreading grant-date fair value over the vesting period
Example: Options granted with a 4-year vesting period
A company grants employee stock options with a total grant-date fair value of $480,000, vesting evenly over 4 years of continued service.
The COMPANY recognizes COMPENSATION expense OF $480,000 ÷ 4 = $120,000 per year, over the FOUR-year vesting PERIOD, REFLECTING the SERVICE being RENDERED throughout THAT period.
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Worked Example – a Cash-Settled Stock Appreciation Right
A liability remeasured each period until settlement
Example: A stock appreciation right granted to a key executive
A company grants a stock appreciation right to an executive, with a fair value of $60,000 at the current reporting date, up from $45,000 at the prior reporting date, fully vested.
The COMPANY recognizes ADDITIONAL compensation EXPENSE of $60,000 − $45,000 = $15,000 for the PERIOD, INCREASING the RECOGNIZED liability TO $60,000, REMEASURED again AT the NEXT reporting DATE until the RIGHT is ULTIMATELY settled.
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Disclosure Requirements
What Section 3870 requires
Description of stock-based compensation arrangements, including vesting conditionsCompensation cost recognized during the period, and the method used to determine fair valueNumber and weighted average exercise price of options outstanding, granted, exercised, and forfeited
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Critical Judgments & Estimates
Where judgment matters most
SIGNIFICANT JUDGMENTS
Which valuation technique is appropriate, particularly for closely held enterprises without observable equity valuesExpected forfeiture rates
SIGNIFICANT ESTIMATES
Grant-date fair value, using an option-pricing model or alternative valuation techniqueFair value of cash-settled awards at each subsequent reporting date
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Relationship to IFRS 2
Comparison – ASPE Section 3870 vs IFRS 2
FeatureASPE Section 3870IFRS 2
General fair value based methodYESYES – converged
Simplified valuation for closely held enterprisesAvailable in appropriate circumstancesNarrower practical expedients only
BROADLY converged IN overall APPROACH, with ASPE'S own PRACTICAL accommodation FOR enterprises LACKING observable EQUITY values BEING the MOST notable, THOUGH relatively NARROW, point OF divergence.
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Statement Mapping
Where every stock-based compensation event lands
EventStatement(s) affectedNotes
Equity-settled award expenseIS SRERecognized over the vesting period, credited to contributed surplus
Cash-settled award remeasurementBS ISLiability remeasured each period until settlement
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Related Standards
Cross-reference map
SectionConnection
Section 3251Equity – governs the contributed surplus credit for equity-settled stock-based compensation
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Quick-Reference Glossary
Vesting period
The period during which an employee must provide service before a stock-based award becomes unconditionally theirs.
Stock appreciation right
A cash-settled award entitling the holder to a payment based on the increase in an enterprise's share value, recognized as a liability remeasured until settlement.
Financial statement key (ASPE terminology)
BS Balance Sheet
IS Income Statement
SRE Statement of Retained Earnings / Statement of Changes in Equity
SCF Cash Flow Statement