Equity & People
What is ASC 718?
ASC 718: definition
Equity grants are not free: they transfer value to employees, and ASC 718 makes that cost visible on the P&L. You measure the grant’s fair value at the grant date (often using a Black-Scholes model for options) and recognize it as compensation expense over the service/vesting period, with adjustments for forfeitures. It is a non-cash expense but a real one that auditors and investors expect to see.
- Fair value measured at grant date (Black-Scholes for options)
- Expense recognized over the vesting/service period
- Non-cash, but reduces reported GAAP net income
- Requires tracking grants, vesting, forfeitures, and modifications
How Fintra handles it
Fintra ties equity to the ledger: it computes ASC 718 fair value for each grant, builds the expense amortization schedule over the vesting period, and posts the stock-comp expense to the GL automatically, with forfeiture and modification handling. Because the cap table and the accounting share one system, the stock-comp expense always reconciles to the grants outstanding.
Worked example
Questions people ask
What does ASC 718 require?
It requires measuring the grant-date fair value of stock-based compensation and expensing it over the vesting period. For options, fair value usually comes from a Black-Scholes model; the resulting expense reduces GAAP net income even though no cash changes hands.
Is stock-based compensation a real expense?
Yes: it is a non-cash expense, but it represents genuine value transferred to employees and dilution to shareholders. Investors watch it closely, and it is a required part of GAAP financials. It is added back in some cash and adjusted-earnings measures.
How is the fair value of an option calculated?
Typically with an option-pricing model like Black-Scholes, using inputs such as the stock’s fair value (from the 409A), strike price, expected term, volatility, and risk-free rate. Fintra computes this for each grant to drive the ASC 718 expense.
How does Fintra handle ASC 718?
Fintra computes grant-date fair value, schedules the expense over vesting, and posts it to the general ledger automatically with forfeiture handling, and because the cap table and books share one system, the expense always reconciles to grants outstanding.
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