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Advanced Topics in Equity Compensation Accounting
by Takis Makridis
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Now with Lay-Flat Spiral Coil Binding for Ease of StudyLike the other NCEO books used in the CEPI program, the new 2019 edition features spiral coil binding so you can lay the pages flat while studying or at the exam.
Format: Perfect-bound book, 342 pages
Dimensions: 6 x 9 inches
Edition: 8th (March 2019)
Status: In stock
Chapter 1: Valuation Models
Chapter 2: Expected Term
Chapter 3: Volatility Estimation
Chapter 4: Expense Recognition for Market, Performance, and Service Conditions
Chapter 5: Making Sense of Forfeiture Rates
Chapter 6: Modification Accounting
Chapter 7: IFRS 2: Today and Tomorrow
Chapter 8: Design Features Driving the Fair Value of a Relative TSR Award
Chapter 9: Accounting for Assumed Awards Under ASC 805
Chapter 10: FASB Standard-Setting Affecting ASC 718 and Equity Compensation
From Chapter 1, "Valuation Models"In contrast to a liability award, the fair value of an equity award is measured on the grant date; thus, its eventual intrinsic value at settlement is unlikely to equal its grant-date fair value. Qualitatively, the fair value of an equity award is the most accurate forecast of the expected cost to a company of issued options, expressed in present value. This cost is the expected stock price at the eventual option settlement date less the strike price, discounted to the present.
Before the release of ASU 2018-07, the measurement date of a nonemployee award was the vesting date. Nonemployee awards were classified in the equity section of the balance sheet, but were marked to market through the date in which the required performance has been rendered. The ASU put nonemployee awards under the purview of ASC 718, meaning the grant date is now the measurement date of an award's fair value, assuming the award will be settled in shares. See section 10.7 for a discussion of nonemployee accounting.
The objective of any valuation model is to forecast the actual future cost an award will present to a company, which is its intrinsic value at settlement. Principles and standards exist for performing this valuation: well-established rules guide theoretical finance to the so-called "best guess" of future value. The rules call for, for example, simulating a diverse set of potential stock price paths over time, the magnitude of each movement depending on assumed stock price volatility. The next few sections elaborate on how this valuation process is performed.
From Chapter 7, "IFRS 2: Today and Tomorrow"Some companies have performance goals that can extend past the required service period. This has begged the conceptual question of whether it is logical to call a provision a vesting condition when the condition is unrelated to the rendering of service.
IFRS took the more radical view that a performance condition is only a performance condition if the maximum time to meet it is equal to or less than the service condition. A performance condition that can be hit after service is rendered is instead a "non-vesting condition." Under IFRS 2, a non-vesting condition must be incorporated in the award's fair value (usually using an advanced Monte Carlo simulation approach).
In contrast, ASC 718 allows for a performance target to be achieved after the required service is rendered, resulting in a simpler approach that remains part of the award accrual process.