FASB Declines to Revisit Remeasurement of Equity Awards

Since the adoption of ASC 718, equity awards have been measured once, at grant, and liability awards have been marked to market until settlement. At its October 28 meeting, the FASB considered whether that distinction should continue. The short answer: it should. The Board decided not to add a project to its agenda on remeasuring equity-classified awards.

How This Issue Got on the Table

Every few years, the FASB asks its stakeholders what it should be working on. This agenda consultation takes the form of an Invitation to Comment (ITC), a document that isn’t a proposal for any particular change but instead lays out a range of potential topics and asks investors, preparers, auditors, academics, and anyone else who is interested to weigh in on which ones deserve the Board’s attention.

The most recent ITC was issued on January 3, 2025, with comments due June 30, 2025. The FASB’s goals for the consultation were to identify ways to improve the decision usefulness of financial reporting, reduce unnecessary cost and complexity, and maintain and improve the Codification. The FASB staff supplemented the comment letters with outreach meetings and advisory group discussions, and summarized the feedback for the Board in October 2025. Since then, the Board has been working through the topics one by one, deciding which ones warrant research or a standard-setting project.

The remeasurement of share-based payment awards was one of the topics included in the ITC, which indicates that the FASB received suggestions from investors that remeasuring both equity and liability awards at fair value as of each reporting date until settlement would provide better information about the economics of these awards.

Thus, the ITC asked stakeholders if aligning the initial and subsequent measurement of equity and liability awards would give investors useful information. In other words, should equity awards be remeasured each period the way liability awards are?

Equity vs. Liability Treatment

Under ASC 718, the accounting for an award depends on whether it is classified as equity or as a liability.

Equity Awards

Most stock options, restricted stock, and RSUs that will be settled in stock receive equity treatment. These awards are measured at fair value on the grant date, and that’s the end of it. The grant-date fair value is recognized as expense over the service period and generally isn’t revisited (barring modification or forfeiture of the award), regardless of what happens to the company’s stock price afterward. Whether the stock price increases or declines, the expense stays the same. This is one of the features that makes equity compensation so attractive to employers: it is a form of variable pay with fixed expense.

Liability Awards

Awards that will be settled in cash (such as cash-settled SARs and phantom stock), along with certain share-settled awards that have features that call for liability treatment, are classified as liabilities. These awards are initially measured at fair value but are then remeasured at the end of each reporting period until they are settled. Changes in fair value flow through the income statement, so the expense for these awards goes up and down along with the company’s stock price. The final expense recognized is equal to the amount actually paid out.

The question the ITC raised was whether this two-track system makes sense, or whether investors would be better served if equity awards were also remeasured over their lives.

What Stakeholders Said

Luckily, most stakeholders ranked this topic as a low priority and supported keeping the current classification-based model. Their reasons include the following:

• The different measurement approaches appropriately reflect the differing economics of equity and liability awards.
• The current guidance is well understood and isn’t causing significant problems in practice.
• Remeasuring equity awards would increase cost and complexity for companies and would introduce additional volatility into earnings.
• Remeasurement would create a difference between US GAAP and IFRS, which also measures equity-settled awards at the grant date.

The stakeholders who did support further work on this topic pointed to the growing prevalence of stock-based compensation and expressed concern that current disclosures may not be sufficiently transparent. The FASB staff’s meeting handout for the October 28 meeting includes more detail on the feedback.

The Staff Recommendation

The FASB staff evaluated the issue against the Board’s criteria for adding projects to its agenda and recommended against further research or a project. The staff questioned whether there is a pervasive need for change, noting that stakeholders generally didn’t identify significant practice issues or diversity in practice.

As for the concerns about transparency, the staff pointed out that ASC 718 already requires extensive disclosures about share-based payment arrangements, including the nature and terms of the arrangements, compensation cost, award activity, and the methods and assumptions used to determine fair value. The staff believes these disclosures give investors sufficient information.

The staff acknowledged that remeasuring equity awards each period would be technically feasible but questioned whether the benefits would justify the costs. The staff also questioned whether remeasurement would even produce more useful information. Changes in the stock price after the grant date reflect market fluctuations that the employee experiences as an equity holder, not changes in the value of the services the company receives from the employee. Under the grant-date model, it’s the value of those services that is being recognized as expense.

The Board’s Decision

The Board had no questions for the staff and quickly reached consensus. All Board members who spoke agreed with the staff’s recommendation not to add a project on the remeasurement of equity awards to the agenda.

The Board’s discussion largely confirmed that the grant-date fair value model isn’t going anywhere. In the words of Richard Jones, the FASB Chair:

We picked the fair value horse on day one and we’re riding that and I don’t necessarily hear a call for broad change in that area.

Ultimately, remeasuring equity awards would represent a fundamental shift in how stock compensation is accounted for, and the Board doesn’t seem interested in making that shift at this time.

A couple of Board members noted that stock compensation is an area of intense investor interest. As stock prices rise, the potential dilution from outstanding awards, as well as the potential cash costs associated with equity programs, can change significantly over time. Although these Board members didn’t support remeasurement, they expressed interest in additional investor outreach to explore whether current disclosures are sufficiently transparent and whether a disclosure-only project might be warranted. Ultimately, however, the Board decided not to implement a project related to this.

What This Means for You

Well, nothing, really. Equity awards will continue to be measured at grant-date fair value, and liability awards will continue to be remeasured each period until settlement. If the FASB decides to take this question up again or to revisit the disclosures required for stock compensation, we’ll be sure to discuss it here on the NASPP Blog.

You can watch the video of the October 28 meeting on the FASB’s YouTube channel; the discussion of share-based payment awards begins at about 53:10.

To learn more about how equity awards are accounted for, check out our Accounting for Stock Plans topic area.