Accounting for stock based comp on income statement
Is it right to be accounting for future stock comp at grant market value, because assume it was granted at 1$, but the stock in two years moves to $3, the value expensed on the income statement is going to be based at 1$ when it should be really be 3x as much? Is there a revaluation that happens on the income statement ? Also, anyone see how you are essentially double counting vested shares as they show up as an expense as well as in the denominator with basic / diluted shares?
Great question! When it comes to accounting for stock-based compensation, it can get a bit tricky. Generally, the expense recognized for stock-based compensation under US GAAP is based on the fair value at the grant date. So, if the stock was granted at $1, that's the value that would typically be expensed over the vesting period, regardless of how the stock price moves in the future.
However, it's important to note that there are different types of stock-based compensation and the accounting can vary. For example, with stock options, the expense is usually based on the fair value of the options (using a pricing model like Black-Scholes) at the grant date, not the stock price itself.
As for revaluation, under US GAAP, companies generally do not revalue the expense recognized for stock-based compensation once it's been determined at the grant date. This means that even if the stock price goes up to $3, the expense on the income statement would still be based on the $1 grant price.
Remember, this is a general explanation and the specifics can vary based on the exact type of stock-based compensation and the company's individual circumstances. It's always a good idea to consult with an accounting professional or refer to the relevant accounting standards for the most accurate information.
Sources: Anatomy of the 10-K, The Other Road: Corporate Development Associate Fielding Questions, Bullet Proof Comps Recipe, Big Tech vs Wall Street Total Comp, Best accounting books or courses for stock investors
Bump
IMO it should be accounted for at the grant market value. Revaluations should not be reflected / passed through income statement
After wasting 4 hours thinking about this so you don't have to, came to the conclusion that it is actually double counted, as an expense and added to share count, but because there are so many shares outstanding and the level of SBC is small relative to other expenses, it has such a minute effect. As to whether it should be revalued, WSOmembersince09 is spot on it doesn't need to be. The increased dilution expense captured from a movement in the stock price is already captured when you apply the multiple to the EPS, because by doing so you are also inherently applying that multiple to that one line item expense.
doesn't matter really. if stock beats earnings/alt data better it's long, flip side is short. too much focus on stuff like sbc when question is how eps/kpi estimates will trend
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