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Employee Stock, Options and Stock Appreciation Rights

ASC 718 applies to all transactions in which an entity receives employee services in exchange for share-based instruments. The employees are in effect “paying” for the share-based instruments they receive with the services they are providing. Common examples of share-based payment awards include (1) employee share options, (2) share appreciation rights, (3) nonvested shares, and (4) nonvested share units.

To be within the scope of ASC 718, share-based awards must, in addition to being issued in exchange for employee services, be either (1) settled by issuing the entity’s equity shares or other equity instruments or (2) indexed, at least in part, to the value of the entity’s equity shares or other equity instruments, such as a cash-settled share appreciation right granted to an employee.